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As filed with the Securities and Exchange Commission on August 17, 1999
File Nos. 333-41461 and 811-8529
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Post-Effective Amendment No. 6
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 9
MEMORIAL FUNDS
Two Portland Square
Portland, Maine 04101
207-879-1900
David Goldstein, Esq.
Forum Financial Services, Inc.
Two Portland Square
Portland, Maine 04101
Copies to:
Anthony C.J. Nuland, Esq.
Seward & Kissel, LLC
1200 G Street, NW
Washington, D.C. 20005
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It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to Rule 485, paragraph (b)
[ ] on __________________ pursuant to Rule 485, paragraph (b)
[ ] 60 days after filing pursuant to Rule 485, paragraph (a)(1)
[ ] on _________________ pursuant to Rule 485, paragraph (a)(1)
[ ] 75 days after filing pursuant to Rule 485, paragraph (a)(2)
[ ] on _________________ pursuant to Rule 485, paragraph (a)(2)
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of series being registered: Shares of Government Money Market Fund, Equity
Income Fund and International Equity Fund.
<PAGE>
LOGO
MEMORIAL FUNDS
PROSPECTUS
August 17, 1999
GOVERNMENT MONEY MARKET FUND
EQUITY INCOME FUND
INTERNATIONAL EQUITY FUND
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED ANY
FUND'S SHARES OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY.................................... 2
FEE TABLES............................................. 4
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS............ 6
MANAGEMENT............................................. 9
YOUR ACCOUNT........................................... 11
How to Contact the Funds 11
General Information 11
Buying Shares 12
Selling Shares 14
Exchange Privileges 16
OTHER INFORMATION...................................... 17
<PAGE>
RISK/RETURN SUMMARY
GOVERNMENT MONEY MARKET FUND
INVESTMENT GOAL As high a level of current income as is consistent with the
preservation of capital and liquidity.
PRINCIPAL INVESTMENT STRATEGY The Fund is a "money market" fund that invests in
direct obligations of the U.S. Treasury and other securities issued or
guaranteed as to principal and interest by the U.S. Government or by its
agencies or instrumentalities, as well as repurchase agreements secured by such
obligations.
EQUITY INCOME FUND
INVESTMENT GOAL High total return on investment through growth of capital and
current income without regard to federal income tax considerations.
PRINCIPAL INVESTMENT STRATEGY The Fund invests in two different styles of
securities: value equity securities and convertible securities. The Fund, using
a sub-adviser dedicated to each distinct style, invests under normal
circumstances, approximately 65 percent of the Fund's total assets in value
equity securities and approximately 35 percent of its total assets in
convertible securities. The Fund uses a "value investing" style by investing in
the equity securities of domestic companies that its sub-adviser believes are
under-priced relative to comparable securities determined by price/earnings
ratios, cash flows or other measures. The Fund also invests in securities of
domestic companies that are convertible into common stocks, such as convertible
bonds, convertible notes and convertible preferred stocks. The Fund only invests
in companies having a minimum market capitalization of $100 million at the time
of purchase and seeks to maintain a minimum average weighted market
capitalization of $5 billion.
[Margin callout: Concepts to Understand
REPURCHASE AGREEMENT means an instrument under which the holder
acquires ownership of a debt security and the seller agrees, at the
time of the sale, to repurchase the obligation at a mutually
agreed-upon time and price, thereby determining the yield during the
holder's holding period
VALUE INVESTING means to invest in stocks whose prices are low relative
to stocks of comparable companies
PRICE/EARNINGS RATIO means the ratio of a company's current market
stock price divided by annual earnings per share
CONVERTIBLE SECURITY is a security such as preferred stock or bonds
that may be converted into a specified number of shares of common stock
PREFERRED STOCK is stock containing certain rights separate from those
conferred by common stock. Preferred shares seldom carry voting rights
but pay dividends and have liquidation preference over common
shareholders
COMMON STOCK is ownership shares in a corporation that are sold
initially by the corporation and then traded by investors]
INTERNATIONAL EQUITY FUND
INVESTMENT GOAL Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGY The Fund invests under normal circumstances at
least 65 percent of its total assets in equity securities of companies located
in developed countries outside the United States. The Fund only invests in
companies having a minimum market capitalization of $500 million at the time of
purchase and seeks to maintain a minimum average weighted market capitalization
of $5 billion.
2
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PRINCIPAL RISKS OF INVESTING IN THE FUNDS
GOVERNMENT MONEY MARKET FUND Although the Fund seeks to preserve the value of
your investment at $1.00 per share, it is possible that you could lose money on
your investment. The principal risks of investing in the Fund are that changes
in interest rates could affect the value of the Fund's investments. No assurance
can be given that the U.S. Government will provide financial support to such
U.S. Government sponsored agencies or instrumentalities in the future and it is
not obligated by law to renew, grant or extend future financial support.
EQUITY INCOME FUND You could lose money on your investment. The principal risks
of investing in the Fund are that the value of the Fund's investments could
change in response to the fluctuations in the markets, that changes in interest
rates could affect the value of the Fund's investments and that the Fund could
lose money if a security's credit rating is downgraded or the issuer of a
security defaults.
INTERNATIONAL EQUITY FUND You could lose money on your investment. The principal
risks of investing in the Fund are that the value of the Fund's investments
could change in response to the fluctuations in the markets and the specific
risks of investing in foreign markets: foreign, political and economic
instability, adverse movements in currency exchange rates, and the imposition or
tightening of limitations on the repatriation of capital.
An investment in a Fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
3
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FEE TABLES
The following tables describe the fees and expenses that you will pay if you
invest in a Fund.
Shareholder transaction expenses are charges you pay when buying, selling or
exchanging shares of a Fund. Operating expenses, which include fees and expenses
for the adviser and shareholder services, are paid out of a Fund's assets and
are factored into a Fund's share price rather than charged directly to
shareholder accounts.
<TABLE>
<S> <C>
---------------------------------------------------------------------------- -------------------
SHAREHOLDER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Sales Charge (Load) Imposed on Reinvested Distributions None
Maximum Deferred Sales Charge (Load) None
Redemption Fee None
Exchange Fee None
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ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
GOVERNMENT MONEY MARKET FUND
Advisory fees 0.18%
Distribution (12b-1 fees) None
Other Expenses 0.49%
Shareholder Service fees 0.25%
Miscellaneous(1) 0.24%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.67%
Fee Waiver and Expense Reimbursement(2) 0.29%
Net Expenses 0.38%
EQUITY INCOME FUND
Advisory fees 0.62%
Distribution (12b-1 fees) None
Other Expenses 0.46%
Shareholder Service fees 0.25%
Miscellaneous(1) 0.21%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.08%
Fee Waiver and Expense Reimbursement(2) 0.03%
Net Expenses 1.05%
INTERNATIONAL EQUITY FUND
Advisory fees 0.77%
Distribution (12b-1 fees) None
Other Expenses 0.90%
Shareholder Service fees 0.25%
Miscellaneous(1) 0.65%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.67%
Fee Waiver and Expense Reimbursement(2) 0.52%
Net Expenses 1.15%
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</TABLE>
(1) Based on estimated expenses for the current fiscal year.
(2) Based on certain contractual fee waivers and expense
reimbursements that may increase after April 30, 2000.
The following is a hypothetical example intended to help you compare the cost of
investing in each Fund to the cost of investing in other mutual funds. This
example assumes a $10,000 investment in a Fund, a 5 percent annual return, the
Fund's operating expenses remain the same as stated in the table above,
reinvestment of all distributions and redemption at the end of each period.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
<TABLE>
<S> <C> <C> <C>
------------------------ ---------------- ------------------
Government Money Equity Income International
Market Fund Fund Equity Fund
--------------- ------------------------ ---------------- ------------------
After 1 year $41 $110 $144
--------------- ------------------------ ---------------- ------------------
After 3 years $128 $343 $448
--------------- ------------------------ ---------------- ------------------
</TABLE>
4
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
GOVERNMENT MONEY MARKET FUND
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide as high a level of
current income as is consistent with the preservation of capital and liquidity.
INVESTMENT STRATEGIES
The Fund seeks to achieve its objective by investing in direct
obligations of the U.S. Treasury and other securities issued or guaranteed as to
principal and interest by the U.S. Government or by its agencies or
instrumentalities, as well as repurchase agreements secured by such obligations.
The Fund consists exclusively of money market instruments that have maturities
of 397 days or less from the date of purchase (except that securities subject to
repurchase agreements may have longer maturities).
The Fund invests in direct obligations of the U.S. Treasury, which
include Treasury bills, notes and bonds, and repurchase agreements relating to
such securities. In addition, the Fund invests in securities issued or
guaranteed as to principal and interest by the U.S. Government or by its
agencies or instrumentalities and repurchase agreements relating to such
securities. Such obligations are collectively referred to as "Money Market
Obligations". Under normal circumstances, the Fund will invest at least 65% of
its total assets in Money Market Obligations.
The Fund may invest in securities issued or guaranteed as to principal and
interest by the U.S. Government or by its agencies or instrumentalities. Such
obligations may be supported (a) by the full faith and credit of the U.S.
Treasury (as in the case of Government National Mortgage Association
Certificates), (b) by the right of the issuer to borrow from the U.S. Treasury
(as in the case of obligations of the Federal Home Loan Bank), (c) by
discretionary authority of the U.S. Government to purchase certain obligations
of the agency or instrumentality (as in the case of the Federal National
Mortgage Association), or (d) only by the credit of the agency or
instrumentality itself (as in the case of obligations of the Federal Farm Credit
Bank).
The Fund intends to invest in repurchase agreements with banks and
broker-dealers pertaining to the securities described above and which at the
date of purchase are "First Tier" securities as defined in Rule 2a-7 under the
Investment Company Act of 1940, as amended, as such Rule may be amended from
time to time. Repurchase transactions are limited to a term not to exceed 365
days. The Fund may enter into repurchase agreements only with institutions
believed by the Memorial Funds' Board of Trustees to present minimal credit
risk.
EQUITY INCOME FUND
INVESTMENT OBJECTIVE
The investment objective of the Fund is to achieve a high total return
on investment through growth of capital and current income, without regard to
federal income tax considerations.
INVESTMENT STRATEGIES
The Fund invests in two different styles of securities: value equity
securities and convertible securities. The Fund uses a "value investing" style
by investing in the equity securities of domestic companies that its sub-adviser
believes are under-priced relative to comparable securities determined by
price/earnings ratios, cash flows or other measures. The Fund also invests in
securities of domestic companies convertible into common stocks, such as
convertible bonds, convertible notes and convertible preferred stocks. The Fund
invests under normal circumstances approximately 50 percent of its total assets
in value equity securities and approximately 35 percent of its total assets in
5
<PAGE>
convertible securities. The percentage of the Fund's assets invested in the two
different styles may temporarily deviate from the Fund's current allocation due
to changes in market values. The investment adviser will effect transactions
periodically to reestablish the current allocation. Absent unstable market
conditions, the investment adviser does not anticipate making a substantial
number of percentage changes. When the investment adviser believes that a change
in the current allocation percentages is desirable, it will sell and purchase
securities to effect the change. The Fund's convertible portfolio will have an
average market weighted investment grade rating. The Fund only invests in
companies having a minimum market capitalization of $100 million at the time of
purchase and seeks to maintain a minimum average weighted market capitalization
of $5 billion.
The Fund seeks reasonably consistent returns over a variety of market
cycles. The sub-adviser for the value equity portion of the Fund focuses on
securities that it believes have excellent prospects for growth of capital and
current income. The sub-adviser for the convertible portion of the Fund
purchases fixed and variable income obligations that it believes are undervalued
and may offer superior yields.
[Margin callout: Concepts to Understand
INVESTMENT GRADE means a bond with a rating of at least BBB
LARGE CAP COMPANY means a company that has a market capitalization
greater than $10 billion at the time of the Fund's investment
MARKET CAPITALIZATION of a company means the value of the company's
common stock in the stock market.]
INTERNATIONAL EQUITY FUND
INVESTMENT OBJECTIVE
The investment objective of the Fund is long-term capital appreciation.
The Fund is designed for U.S. investors who seek international diversification
of their investments by participating in foreign securities markets.
INVESTMENT STRATEGIES
The Fund invests under normal circumstances at least 65 percent of its
total assets in equity securities of companies located outside the United
States. The sub-adviser selects investments based on potential for capital
appreciation without regard to current income. The Fund generally diversifies
its investments among securities of issuers in "developed" foreign countries
including, but not limited to, Japan, Germany, the United Kingdom, France, The
Netherlands, Hong Kong, Singapore and Australia. The Fund invests only in
securities of companies and governments in countries that the sub-adviser
considers both politically and economically stable. The Fund does not invest in
the securities of any country located in what is known as an "emerging market".
The Fund will not exceed 150 percent of the exposure to any country listed in
the Morgan Stanley EAFE Index. The Fund only invests in companies having a
minimum market capitalization of $500 million at the time of purchase and seeks
to maintain a minimum average weighted market capitalization of $5 billion.
The Fund also may invest in the securities of domestic closed-end
investment companies investing primarily in foreign securities and may invest in
debt obligations of foreign governments or their political subdivisions,
agencies or instrumentalities, of supranational organizations and of foreign
corporations. The Fund may purchase preferred stock and convertible debt
securities, including convertible preferred stock.
INVESTMENT RISKS
GENERALLY There is no assurance that any Fund will achieve its
investment objective. A Fund's total return will fluctuate based upon changes in
the value of its portfolio securities. Upon redemption, an investment in a Fund
may be worth more or less than its original value. No Fund, by itself, provides
a complete investment program.
All investments made by the Funds entail some risk. Among other things,
the market value of any security in which the Funds may invest is based upon the
market's perception of value and not necessarily the book value of an issuer or
other objective measure of the issuer's worth. Certain investments and
investment techniques, however, entail additional risks, such as the potential
use of leverage by certain Funds through borrowings, securities lending, and
other investment techniques. The specific risks of investing in each of the
Funds areas follows:
6
<PAGE>
GOVERNMENT MONEY MARKET FUND
o INTEREST RATE RISK - The risk that the Fund's yield will decrease when
interest rates decrease. This is because the Fund will have to purchase
securities with lower yields to replace the Fund's investments with
higher yields that mature. There is also a risk that an increase in
interest rates could cause the value of the securities in the Fund's
portfolio to decrease. The Fund invests in short-term securities in
order to minimize this risk.
o CREDIT RISK - The risk that the Fund could lose money if a security's
credit rating is downgraded or the issuer of a security defaults (fails
to make scheduled interest and principal payments). The Fund invests in
highly rated securities to minimize this risk.
o MANAGEMENT RISK - The risk that the Fund's managers may make poor
choices in selecting securities and that the Fund will not perform as
well as other money market funds.
o REPURCHASE AGREEMENT RISK - The risk that in the event of a bankruptcy
or other default of a seller of a repurchase agreement, the Fund could
experience both delays in liquidating the underlying securities and
losses, including (1) a possible decline in the value of the underlying
security during the period while the Fund seeks to enforce its rights,
(2) possible sub-normal levels of income and lack of access to income
during this period, and (3) the expenses of enforcing its rights.
EQUITY INCOME FUND
o MARKET RISK - The risk that the value of the Fund's investments will
change, and possibly decrease, in response to fluctuations in the
stock or bond markets generally.
o INTEREST RATE RISK - The risk that changes in interest rates will
affect the value of the Fund's investments, in particular, that an
increase in interest rates could cause the Fund's net asset value to
decline.
o CREDIT RISK - The risk that the Fund could lose money if a security's
credit rating is downgraded or the issuer of a security defaults (fails
to make scheduled interest and principal payments).
o ALLOCATION RISK - The risk that the allocation of investments between
equity and convertible securities will have an adverse effect on the
Fund's net asset value when one of these asset classes performs more
poorly than the other.
o MANAGEMENT RISK - The risk that the Fund's managers may make poor
choices in selecting securities and that the Fund will not perform as
well as other similar funds.
INTERNATIONAL EQUITY FUND
o MARKET RISK - The risk that the value of the Fund's investments will
change, and possibly decrease, in response as to fluctuations in the
stock markets generally.
o CURRENCY RATE RISK - The risk that fluctuations in the exchange rates
between the U.S. dollar and foreign currencies may negatively affect
the value of the Fund's investments.
o FOREIGN RISK - The risk that foreign investments may be subject to
political or economic instability, the imposition or tightening of
exchange controls or other limitations on the repatriation of foreign
capital or nationalization, increased taxation or confiscation of
investors' assets. Also, the risk that the price of a foreign issuer's
securities may not reflect the issuer's condition because there is not
sufficient publicly available information about the issuer.
o GEOGRAPHIC CONCENTRATION RISK - The risk that factors adversely
affecting a Fund's investments in issuers located in a country or
region will affect the Fund's net asset value more than would be the
7
<PAGE>
case if the Fund had made more geographically diverse investments.
o MANAGEMENT RISK - The risk that the Fund's managers may make poor
choices in selecting securities and that the Fund will not perform as
well as other similar funds.
TEMPORARY DEFENSIVE POSITION The Equity Income Fund and International Equity
Fund (collectively the "Equity Funds") may hold cash or cash equivalents, such
as high quality money market instruments, pending investment and to retain
flexibility in meeting redemptions and paying expenses. In addition, in order to
respond to adverse market, economic, political or other conditions, a Fund may
assume a temporary defensive position and invest without limit in commercial
paper and other money market instruments. The result of this action may be that
the Fund will be unable to achieve its investment objectives.
MANAGEMENT
The business of the Memorial Funds (the "Trust") and each Fund is managed under
the direction of the Board of Trustees (the "Board"). The Board formulates the
general policies of the Funds and meets periodically to review the Funds'
performance, monitor investment activities and practices, and discuss other
matters affecting the Funds. Additional information regarding the Trustees, as
well as executive officers, may be found in the Statement of Additional
Information ("SAI").
ADVISER
Memorial Investment Advisors, Inc. (the "Adviser"), 5847 San Felipe, Suite 4545,
Houston, Texas 77057 serves as investment adviser to the Funds. Subject to the
general control of the Board, the Adviser is responsible for among other things,
developing a continuing investment program for each Fund in accordance with its
investment objective, reviewing the investment strategies and policies of each
Fund, and advising the Board on the selection of additional sub-advisers. In
addition, the Adviser receives a fee from each Fund for the "asset allocation
services" of determining the Funds' investments in its portfolios and how much
of the Fund's assets to invest in each portfolio. The Adviser has entered into
investment sub-advisory agreements with the sub-advisers to exercise investment
discretion over the assets (or a portion of assets) of each Fund. For its
services, the Adviser receives an advisory fee at an annual rate of 0.77 percent
of the average daily net assets of the International Equity Fund, 0.62 percent
of the average daily net assets of the Equity Income Fund and 0.18 percent of
the average daily net assets of the Government Money Market Fund.
INVESTMENT CONSULTANT
To assist it in carrying out its responsibilities, the Adviser has retained
Wellesley Group, Inc., 800 South Street, Waltham, Massachusetts 02154, to
provide data with which the Adviser and the Board can monitor and evaluate the
performance of the Funds and the sub-advisers.
SUB-ADVISERS/PORTFOLIO MANAGERS
The Adviser has retained the following sub-advisers to render advisory services
and make daily investment decisions for each Fund. The day-to-day management of
each Fund is performed by a portfolio manager, or a portfolio management team,
employed by each sub-adviser to that Fund. Each sub-adviser is registered or is
exempt from registration as an investment adviser under the Investment Advisers
Act of 1940. The sub-advisers for the Funds are as follows:
A I M CAPITAL MANAGEMENT INC. ("AIM"), 11 Greenway Plaza, Suite 100, Houston,
Texas 77046-1173, manages the portfolio of the GOVERNMENT MONEY MARKET FUND. AIM
provides investment advisory services to the Fund, which includes a continual
program of investment, evaluation and, if appropriate in
8
<PAGE>
the view of AIM, sale and reinvestment of the Fund's assets. AIM has acted as an
investment advisor since its organization in 1986. AIM, together with certain of
its affiliates, advises or manages over 110 investment portfolios, including the
Fund, encompassing a broad range of investment objectives.
TCW FUNDS MANAGEMENT, INC. ("TCW"), 865 South Figueroa Street, Ste. 1800, Los
Angeles, California 90017, manages the convertible portfolio of the Equity
Income Fund. TCW presently manages approximately $1.8 billion in assets for
endowments and foundations, corporations, public funds and insurance companies.
Mr. Kevin A. Hunter and Mr. Thomas D. Lyon are the Fund's co-Portfolio Managers.
Mr. Hunter is a Managing Director and has been at TCW since 1983. He holds a
Masters in Business Administration from the University of California at Los
Angeles. Mr. Lyon is a Managing Director and has been at TCW since 1997. Prior
thereto, Mr. Lyon was a Vice President and Portfolio Manager at Transamerica
Investment Services in Los Angeles, California from 1990 to 1997. He holds a
Masters in Business Administration from the Claremont Graduate School.
PPM AMERICA, INC. ("PPM"), 225 West Wacker Drive, Suite 1200, Chicago, Illinois
60606, manages the value equity portfolio of the Equity Income Fund. PPM
presently manages approximately $39 billion in assets. PPM's equity team manages
approximately $7 billion in large cap value assets for various institutional
clients based in the U.S. and abroad. PPM utilizes a team of investment
professionals acting together to manage the assets of the Fund. The team meets
regularly to review portfolio holdings and to discuss purchase and sale
activity. The team adjusts holdings in the Fund, as they deem appropriate in the
pursuit of the Fund's objectives.
THE GLENMEDE TRUST COMPANY ("Glenmede"), One Liberty Place, 1650 Market Street,
Ste. 1200, Philadelphia, Pennsylvania 19103, manages the portfolio of the
International Equity Fund. Glenmede, founded in 1956, presently manages $15.5
billion in assets of which over $7 Billion is managed for institutional clients
including endowments, foundations, corporations, public funds and Taft-Hartley
pension plans. Approximately $2 billion is dedicated to Glenmede's international
equity product which is managed by a portfolio management team led by Mr. Andrew
B. Williams, CFA. Mr. Williams has been at Glenmede since 1985 and holds a
Masters in Business Administration from Temple University.
OTHER SERVICE PROVIDERS
The Forum Financial Group of companies ("Forum") provides various services to
the Funds. As of June 30, 1999, Forum provided administration and distribution
services to investment companies and collective investment funds with assets of
approximately $73 billion.
Forum Fund Services, LLC, a registered broker-dealer and member of the National
Association of Securities Dealers, Inc., is the distributor (principal
underwriter) of the Funds' shares. The distributor acts as the agent of Memorial
Funds in connection with the offering of shares of the Funds. The distributor
may enter into arrangements with banks, broker-dealers or other financial
institutions through which you may purchase or redeem shares and may, at its own
expense, compensate persons who provide services in connection with the sale or
expected sale of shares of the Funds.
Forum Shareholder Services, LLC (the "Transfer Agent") is the Funds' transfer
agent.
9
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SHAREHOLDER SERVICES PLAN
The Trust has adopted a shareholder services plan permitting the Trust to
compensate financial institutions for acting as shareholder servicing agents for
their customers. Under this plan, the Trust has entered into an agreement with
Memorial Group, Inc., a corporation of which Christopher W. Hamm, the Chairman
of the Board and President of the Trust, is the sole shareholder. Memorial
Group, Inc. performs certain shareholder services not provided by Transfer Agent
and is paid fees at an annual rate of 0.25 percent of the average daily net
assets of the shares of the Fund owned by investors for which Memorial Group,
Inc. maintains a servicing relationship.
FUND EXPENSES
The Funds pay for all of their expenses. Each Fund's expenses are comprised of
expenses attributable to the particular Fund as well as expenses not
attributable to any particular Fund that are allocated among the Funds. The
Adviser or other service providers may waive all or any portion of their fees,
which are accrued daily and paid monthly. Any waiver would have the effect of
increasing a Fund's performance for the period during which the waiver was in
effect.
YOUR ACCOUNT
HOW TO CONTACT THE FUNDS
Write to us at:
Memorial Funds
P.O. Box 446
Portland, ME 04112
Telephone us Toll-Free at:
(888) 263-5593
Wire investments (or ACH payments) to us at:
BankBoston Boston, Massachusetts ABA #011000390 For Credit to:
Forum Shareholder Services, LLC
Account # 541-54171
Memorial Funds
(Your Name)
(Your Account Number)
(Your Social Security number or tax identification number)
GENERAL INFORMATION
You pay no sales charge to purchase or sell (redeem) shares of the Funds. The
Funds purchase and sell shares at the net asset value per share or NAV next
calculated after the Transfer Agent receives your transaction request in proper
form. For instance, if the Transfer Agent receives your transaction request in
proper form prior to 4 p.m. (Eastern time), your transaction will be priced at
that day's NAV. If the Transfer Agent receives your transaction request after 4
p.m., your transaction will be priced at the next day's NAV. The Funds will not
accept orders that request a particular day or price for the transaction or any
other special conditions.
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The Funds do not issue share certificates.
You will receive monthly statements and a confirmation of each transaction. You
should verify the accuracy of all transactions in your account as soon as you
receive your confirmation.
The Funds reserve the right to impose minimum investment amounts and may
temporarily suspend (during unusual market conditions) or discontinue any
service or privilege.
WHEN AND HOW NAV IS DETERMINED. Each Fund calculates its NAV as of the close of
the New York Stock Exchange (normally 4:00 p.m., Eastern time) on each weekday
except days when the New York Stock Exchange is closed. The time at which the
NAV is calculated may be changed in case of an emergency. The Funds' NAV is
determined by taking the market value of all securities owned by the Fund (plus
all other assets such as cash), subtracting all liabilities and then dividing
the result (net assets) by the number of shares outstanding. The Funds value
securities for which market quotations are readily available are valued at
current market value. If market quotations are not readily available, the Funds
value securities at fair value. International Equity Fund invests in foreign
securities that trade on markets that do not operate on the same schedule as the
Exchange. This means that the net asset value of the International Equity Fund
may change on days when you are not able to purchase or redeem its shares.
International Equity Fund may adjust the value of a foreign security when
determining net asset value if the security trades on a market that closes
before the Exchange. In order to maintain a stable net asset value of $1.00 per
share, Government Money Market Fund values the securities in its portfolio on an
amortized cost basis.
TRANSACTIONS THROUGH THIRD PARTIES. If you invest through a broker or other
financial institution, the policies and fees charged by that institution may be
different than those of the Funds. Banks, brokers, retirement plans and
financial advisers may charge transaction fees and may set different minimum
investments or limitations on buying or selling shares. Consult a representative
of your financial institution or retirement plan for further information.
BUYING SHARES
All investments must be in U.S. dollars and checks must be drawn on U.S. banks.
CHECKS. For individual or UGMA/UTMA accounts, the check must be made
payable to "Memorial Funds" or to one or more owners of the account
and endorsed to "Memorial Funds." For all other accounts, the check
must be made payable on its face to "Memorial Funds." No other method
of check payment is acceptable (for instance, you may not pay by
travelers check).
ACH PAYMENT. Instruct your financial institution to make an ACH
(automated clearinghouse) payment to us. These payments typically take
two days. Your financial institution may charge you a fee for this
service.
WIRES. Instruct your financial institution to make a Federal Funds
wire payment to us. Your financial institution may charge you a fee
for this service.
MINIMUM INVESTMENTS. The Funds accept payments in the following minimum amounts:
<TABLE>
<S> <C> <C>
------------------------- --------------------------
Minimum Initial Minimum Additional
Investment Investment
-------------------------------------- ------------------------- --------------------------
Standard Amount $2,000 None
-------------------------------------- ------------------------- --------------------------
</TABLE>
Management of the Funds may choose to waive the investment minimum.
11
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<TABLE>
<CAPTION>
ACCOUNT REQUIREMENTS
<S> <C>
- ------------------------------------------------------------ ---------------------------------------------------------
TYPE OF ACCOUNT REQUIREMENT
- ------------------------------------------------------------ ---------------------------------------------------------
INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT ACCOUNTS o Instructions must be signed by all persons
Individual accounts are owned by one person, as are sole required to sign (you choose who must sign)
proprietorship accounts. Joint accounts can have two or exactly as each name appears on the account
more owners (tenants)
- ------------------------------------------------------------ ---------------------------------------------------------
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA) o Depending on state laws, you can set up a
These custodial accounts provide a way to give money to a custodial account under the Uniform Gift to Minors
child and obtain tax benefits. You can give up to $10,000 Act or the Uniform Transfers to Minors Act
a year per child without paying Federal gift tax. o The trustee must sign instructions in a
manner indicating trustee capacity
- ------------------------------------------------------------ ---------------------------------------------------------
BUSINESS ENTITIES o For entities with officers, provide an original or
certified copy of a resolution that identifies the
authorized signers for the account
o For entities with partners or other interested
parties, provide a certified partnership agreement
or organizational document, or certified pages from
the partnership agreement or organizational
document, that identify the partners or interested parties
- ------------------------------------------------------------ ---------------------------------------------------------
TRUSTS o The trust must be established before an
account can be opened
o Provide a certification for trust, or the
pages from the trust document that identify the
trustees
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
<TABLE>
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INVESTMENT PROCEDURES
<S> <C>
- ------------------------------------------------------------ ---------------------------------------------------------
TO OPEN AN ACCOUNT TO ADD TO YOUR ACCOUNT
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
BY CHECK BY CHECK
o Call or write us for an account application o Fill out an investment slip from a
o Complete the application confirmation statement OR
o Mail us your application and a check o Write a letter to us
o Write your account number on your check.
BY WIRE o Mail us the slip (or your letter) and a check
o Call or write us for an account application
o Complete the application BY WIRE
o Call us and you will be assigned an account number o Call to notify us of your incoming wire
o Mail us your application o Instruct your bank to wire your money to us
o Instruct your bank to wire your money to us BY AUTOMATIC INVESTMENT
o Call or write us for an "Automatic Investment"
BY ACH PAYMENT form
o Call or write us for an account application o Complete the form
o Complete the application o Attach a voided check to your form
o Call us and you will be assigned an account number o Mail us the form
o Mail us your application
o Make an ACH payment
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
12
<PAGE>
AUTOMATIC INVESTMENTS. You may invest a specified amount of money in the Funds
once or twice a month on specified dates. These payments are taken from your
bank account by ACH payment. Automatic investments must be for at least $100.
LIMITATIONS ON PURCHASES. The Funds reserve the right to refuse any purchase
(including exchange) request, particularly requests that could adversely affect
the Funds or their operations. This includes those from any individual or group
who, in the Funds' view, are likely to engage in excessive trading (usually
defined as more than four exchanges out of a Fund within a calendar year).
CANCELED OR FAILED PAYMENTS. The Funds accept checks and ACH transfers at full
value subject to collection. If your payment for shares is not received or you
pay with a check or ACH transfer that does not clear, your purchase will be
canceled. You will be responsible for any losses or expenses incurred by the
Funds or the Transfer Agent, and the Funds may redeem shares you own in the
account (or another identically registered account in any Fund) as
reimbursement. The Funds and their agents have the right to reject or cancel any
purchase, exchange, or redemption due to nonpayment.
SELLING SHARES
The Funds process redemption orders promptly and you will generally receive
redemption proceeds within a week. Delays may occur in cases of very large
redemptions, excessive trading or during unusual market conditions. If the Funds
have not yet collected payment for the shares you are selling, however, it may
delay sending redemption proceeds for up to 15 calendar days.
- --------------------------------------------------------------------------------
To Sell Shares from Your Account
- --------------------------------------------------------------------------------
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The Fund name
o The dollar amount or number of shares you want to sell
o How and where to send your proceeds
o Obtain a signature guarantee (if required)
o Obtain other documentation (if required)
o Mail us your request and documentation
BY WIRE
o Wire requests are only available if:
o You have elected wire redemption privileges and
o Your request is for $5,000 or more
o Call us with your request (if you have elected telephone redemption
privileges - See "By Telephone") OR
o Mail us your request (See "By Mail")
BY TELEPHONE
o Telephone requests are only available if you have elected telephone
redemption privileges.
o Call us with your request
o Provide the following information:
o Your account number
o Exact name(s) in which account is registered
o Additional form of identification
o Your proceeds will be:
o Mailed to you or
o Wired to you (if you have elected wire redemption privileges - See "By
Wire")
AUTOMATICALLY
o Call or write us for an "Automatic Redemption" form
o Attach a voided check to your form
o Mail us your form
- --------------------------------------------------------------------------------
13
<PAGE>
AUTOMATIC REDEMPTION. You may request a specified amount of money from your
account once a month on a specified date. These payments are sent from your
account to a designated bank account by ACH payment. Automatic requests must be
for at least $100.
SIGNATURE GUARANTEE REQUIREMENTS. To protect you and the Funds against fraud,
signatures on certain requests must have a "signature guarantee." You must
obtain a signature guarantee to do any of the following:
o Redeem over $50,000 worth of shares
o Change the record name or address of your account
o Redeem from your account if you have changed the address or account
registration within the last 30 days
o Send proceeds to any person, address, brokerage firm or bank account not on
record
o Send proceeds to an account with a different registration (name or ownership)
from yours
o Change to distribution, telephone requests or exchange option or any other
election in connection with your account
A signature guarantee verifies the authenticity of your signature. You can
obtain one from most banking institutions or securities brokers, but not from a
notary public.
SMALL ACCOUNTS. If the value of your account falls below $2,000, the Funds may
ask you to increase your balance. If the account value is still below $2,000
after 60 days, the Funds may close your account and send you the proceeds. The
Funds will not close your account if it falls below these amounts solely as a
result of a reduction in your account's market value.
REDEMPTION IN KIND. Each Fund reserves the right to make a redemption "in kind"
- -- payment of redemption proceeds in portfolio securities rather than cash -- if
the amount requested is large enough to affect the Fund's operations (for
example, if it represents more than 1 percent of the Fund's assets).
LOST ACCOUNTS. The Transfer Agent will consider your account "lost" if
correspondence to your address of record is returned as undeliverable, unless
the Transfer Agent determines your new address. When an account is "lost," all
distributions on the account will be reinvested in additional shares of the
Fund. In addition, the amount of any outstanding (unpaid for six months or more)
checks for distributions that have been returned to the Transfer Agent will be
reinvested and the checks will be canceled.
EXCHANGE PRIVILEGES
You may sell your Fund shares and buy shares of any other series of the Memorial
Funds, also known as an exchange, by telephone or in writing. Because exchanges
are treated as a sale and purchase, they may have tax consequences.
14
<PAGE>
REQUIREMENTS. Exchanges may be made only between identically registered accounts
(name(s), address and taxpayer ID number). There is currently no limit on
exchanges, but the Fund reserves the right to limit exchanges. See "Investment
Procedures - Limitations on Purchases."
- --------------------------------------------------------------------------------
HOW TO EXCHANGE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The names of the Funds from which you are exchanging into and out of
o The dollar amount or number of shares you want to sell (and exchange)
o If opening a new account, complete an account application if you are
requesting different shareholder privileges
o Mail us your request and documentation
BY TELEPHONE
o Telephone exchanges are only available if you have elected telephone
redemption privileges
o Call us with your request
o Provide the following information:
o Your account number
o Exact name(s) in which account is registered
o Additional form of identification
- --------------------------------------------------------------------------------
OTHER INFORMATION
DISTRIBUTIONS
Distributions of net investment income are declared daily and paid monthly by
the Government Money Market Fund and are declared and paid quarterly by the
International Equity Fund. The Equity Income Fund declares and pays its
distributions of net investment income monthly. Any net capital gain realized by
a Fund will be distributed at least annually.
All distributions are reinvested in additional shares, unless you elect to
receive distributions in cash. For Federal income tax purposes, distributions
are treated the same whether they are received in cash or reinvested. Shares
become entitled to receive distributions on the day after the shares are issued.
TAXES
Each Fund intends to operate in a manner so that it will not be liable for
Federal income or excise tax.
Distributions of net investment income or short-term capital gain are taxable to
you as ordinary income. Distributions of long-term capital gain are taxable to
you as long-term capital gain regardless of how long you have held your shares.
Distributions may also be subject to state and local taxes.
Distributions from the Equity Funds reduces the net asset value of the Funds'
shares by the amount of the distribution. If you purchase shares prior to these
distributions, you are taxed on the distribution even though the distribution
represents a return of your investment.
The sale or exchange of Fund shares is a taxable transaction for Federal income
tax purposes.
The Funds will mail reports containing information about the Funds'
distributions during the year to you after December 31 of each year.
15
<PAGE>
Consult your tax adviser about the Federal, state and local tax consequences in
your particular circumstances.
ORGANIZATION
Memorial Funds is a Delaware business trust that is registered with the SEC as
an open-end, management investment company (a "mutual fund"). There are four
additional series of the Memorial Funds: Government Bond Fund, Corporate Bond
Fund, Growth Equity Fund and Value Equity Fund. It is not intended that meetings
of shareholders be held except when required by Federal or Delaware law and all
shareholders of each Fund are entitled to vote at shareholders' meetings unless
a matter is determined to affect only a specific Fund (such as approval of an
advisory agreement for a Fund). From time to time, large shareholders may
control a Fund or the Memorial Funds.
CORE AND GATEWAY(R)
Each Fund may seek to achieve its investment objective by investing all of its
assets in shares of one or more diversified, open-end management investment
companies that have an investment objective and investment policies
substantially similar to that of the Fund.
YEAR 2000
Certain computer systems may not process date-related information properly on
and after January 1, 2000. The Funds' adviser and administrator are addressing
this matter for their systems. The Funds' other service providers have informed
the Funds that they are taking similar measures. This matter, if not corrected,
could adversely affect the services provided to the Funds or the companies in
which the Funds invest and, therefore, could lower the value of your shares.
16
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<S> <C>
FOR MORE INFORMATION
The following documents are available free upon request:
GOVERNMENT MONEY MARKET FUND
ANNUAL/SEMI-ANNUAL REPORTS EQUITY INCOME FUND
The Funds will prepare annual and semi-annual reports to shareholders that INTERNATIONAL EQUITY FUND
will provide additional information about the Funds'
investments. In each Fund's annual report, you will find a discussion of the
market conditions
and investment strategies that significantly affected the Fund's
performances during the preceding fiscal year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI") THE SAI PROVIDES
more detailed information about the Funds and is
incorporated by reference into this Prospectus.
You can get free copies of both reports (when available) and the SAI, request
other information and discuss your questions about the Funds by
contacting your broker or the Funds at:
Memorial Funds
Two Portland Square
Portland, Maine 04101
888-263-5593
You can also review the Funds' reports (when available) and SAIs at the
Public Reference Room of the Securities and Exchange Commission. You can
get copies, for a fee, by writing to or calling the following:
Public Reference Room
Securities and Exchange Commission Memorial Funds
Washington, D.C. 20549-6009 P.O. Box 446
Telephone: 800-SEC-0330 Portland, ME 04112
888-263-5593
Free copies are available from the Commission's Internet
website at http://www.sec.gov.
Investment Company Act File No. 811-9034.
</TABLE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 17, 1999
MEMORIAL FUNDS
GOVERNMENT MONEY MARKET FUND
EQUITY INCOME FUND
INTERNATIONAL EQUITY FUND
FUND INFORMATION:
Memorial Funds
Two Portland Square
Portland, Maine 04101
(888) 263-5593
INVESTMENT ADVISER:
Memorial Investment Advisors, Inc.
5847 San Felipe, Suite 4545
Houston, TX 77057
ACCOUNT INFORMATION AND SHAREHOLDER SERVICES:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(888) 263-5593
This Statement of Additional Information or "SAI" supplements the Prospectus
dated August 17, 1999, as may be amended from time to time, offering shares of
Government Money Market Fund, Equity Income Fund and International Equity Fund
(the "Funds"). This SAI is not a prospectus and should only be read in
conjunction with a prospectus. The Prospectuses may be obtained without charge
by contacting shareholder services at the address or telephone number listed
above.
<PAGE>
TABLE OF CONTENTS
Glossary ..................................................... XX
1. Investment Policies and Risks................................. XX
2. Investment Limitations........................................ XX
3. Performance Data and Advertising.............................. XX
4. Management.................................................... XX
5. Portfolio Transactions........................................ XX
6. Additional Purchase and Redemption Information................ XX
7. Taxation ..................................................... XX
8. Other Matters................................................. XX
Appendix A - Description of Securities Ratings......................... A-1
<PAGE>
GLOSSARY
"Adviser" means Memorial Investment Advisors, Inc.
"Board" means the Board of Trustees of the Trust.
"CFTC" means the U.S. Commodities Futures Trading Commission.
"Code" means the Internal Revenue Code of 1986, as amended.
"Custodian" means the custodian of each Fund's assets.
"FAdS" means Forum Administrative Services, LLC, administrator of each
Fund.
"FAcS" means Forum Accounting Services, LLC, the fund accountant of
each Fund.
"FFS" means Forum Fund Services, LLC, distributor of each Fund's
shares.
"Fund" means each of the separate series of the Trust to which this SAI
relates as identified on the cover page.
"Fitch" means Fitch IBCA, Inc.
"Moody's" means Moody's Investors Service.
"NAV" means net asset value.
"NRSRO" means a nationally recognized statistical rating organization.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's.
"Stock Index Futures" means futures contracts that relate to broadly
based stock indices.
"Subadviser" means TCW Funds Management, Inc., PPM America, Inc., The
Glenmede Trust Company and A I M Capital Management Inc., as
appropriate.
"Transfer Agent" means Forum Shareholder Services, LLC, the transfer
agent and distribution disbursing agent of each Fund.
"Trust" means Memorial Funds.
"U.S. Government Securities" means obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
"U.S. Treasury Securities" means obligations issued or guaranteed by
the U.S. Treasury.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
1
<PAGE>
1. INVESTMENT POLICIES AND RISKS
The following discussion supplements the disclosure in the prospectuses about
each Fund's investment techniques, strategies and risks.
A. SECURITY RATINGS INFORMATION
The Fund's investments in fixed income securities are subject to credit risk
relating to the financial condition of the issuers of the securities that Funds
hold. To limit credit risk, each Fund generally may only invest its assets in
debt securities that are considered investment grade. Investment grade means
rated in the top four long-term rating categories or top two short-term rating
categories by an NRSRO, or unrated and determined by the Subadviser to be of
comparable quality. Government Money Market Fund, as a money market fund
regulated under Rule 2a-7 under the 1940 Act, must normally invest at least 95%
of its total assets in securities that are rated in the highest short-term
rating category for debt obligations, or are unrated and determined to be of
comparable quality. The lowest long-term ratings that are investment grade for
corporate bonds, including convertible bonds, are "Baa" in the case of Moody's
and "BBB" in the case of S&P and Fitch; for preferred stock are "Baa" in the
case of Moody's and "BBB" in the case of S&P and Fitch; and for short-term debt,
including commercial paper, are Prime-2 (P-2) in the case of Moody's, "A-2" in
the case of S&P and "F-2" in the case of Fitch.
Unrated securities may not be as actively traded as rated securities. A Fund may
retain securities whose rating has been lowered below the lowest permissible
rating category (or that are unrated and determined by the Subadviser to be of
comparable quality to securities whose rating has been lowered below the lowest
permissible rating category) if the Subadviser determines that retaining such
security is in the best interests of the Fund. Because a downgrade often results
in a reduction in the market price of the security, sale of a downgraded
security may result in a loss.
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of bonds and other
securities by several NRSROs is included in Appendix A to this SAI. The Funds
may use these ratings to determine whether to purchase, sell or hold a security.
Ratings are general and are not absolute standards of quality. Securities with
the same maturity, interest rate and rating may have different market prices. If
an issue of securities ceases to be rated or if its rating is reduced after it
is purchased by a Fund, the Subadviser will determine whether the Fund should
continue to hold the obligation. To the extent that the ratings given by a NRSRO
may change as a result of changes in such organizations or their rating systems,
the Subadviser will attempt to substitute comparable ratings. Credit ratings
attempt to evaluate the safety of principal and interest payments and do not
evaluate the risks of fluctuations in market value. Also, rating agencies may
fail to make timely changes in credit ratings. An issuer's current financial
condition may be better or worse than a rating indicates.
In addition, the Government Money Market Fund (1) will invest only in
instruments that have a remaining maturity of 397 days or less (as calculated in
accordance with Rule 2a-7 under the 1940 Act); (2) will maintain a
dollar-weighted average maturity of 90 days or less; (3) will not invest more
than 5 percent of its total assets in the securities of any one issuer (except
U.S. Government Securities and to the extent permitted by Rule 2a-7); and (4)
will not purchase a security if the value of all securities held by the Fund and
issued or guaranteed by the same issuer (including letters of credit in support
of a security) would exceed 10 percent of the Fund's total assets.
B. TEMPORARY DEFENSIVE POSITION
A Fund, other than the Government Money Market Fund, may assume a temporary
defensive position and may invest without limit in money market instruments that
are of prime quality. Prime quality instruments are those instruments that are
rated in one of the two highest short-term rating categories by an NRSRO or, if
not rated, determined by the Subadviser to be of comparable quality. Certain
additional Funds may invest in commercial paper as an investment and not as a
temporary defensive position. Except as noted below with respect to variable
master demand notes, issues of commercial paper normally have maturities of less
than nine months and fixed rates of return.
2
<PAGE>
Money market instruments usually have maturities of one year or less and fixed
rates of return. The money market instruments in which a Fund may invest include
U.S. Government Securities, commercial paper, time deposits, bankers acceptances
and certificates of deposit of banks doing business in the United States that
have, at the time of investment, total assets in excess of one billion dollars
and that are insured by the Federal Deposit Insurance Corporation, corporate
notes and short-term bonds and money market mutual funds. The Funds may only
invest in money market mutual funds to the extent permitted by the 1940 Act.
The money market instruments in which a Fund may invest may have variable or
floating rates of interest. These obligations include master demand notes that
permit investment of fluctuating amounts at varying rates of interest pursuant
to direct arrangement with the issuer of the instrument. The issuer of these
obligations often has the right, after a given period, to prepay the outstanding
principal amount of the obligations upon a specified number of days' notice.
These obligations generally are not traded, nor generally is there an
established secondary market for these obligations. To the extent a demand note
does not have a 7-day or shorter demand feature and there is no readily
available market for the obligation, it is treated as an illiquid security.
Variable amount master demand notes are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Because master demand
notes are direct lending arrangements between a Fund and the issuer, they are
not normally traded. Although there is no secondary market in the notes, the
Fund may demand payment of principal and accrued interest at any time. Variable
amount master demand notes must satisfy the same criteria as set forth above for
commercial paper.
C. HEDGING AND OPTION INCOME STRATEGIES
A Fund may seek to hedge against a decline in the value of securities it owns or
an increase in the price of securities that it plans to purchase. A Fund
accomplishes a hedge by purchasing options or writing (selling) covered options
on securities in which it has invested or on any securities index based in whole
or in part on securities in which the Fund may invest. Options may trade on an
exchange or the over-the-counter market.
A Fund may invest in certain financial futures contracts and options contracts
in accordance with the policies described in this SAI. A Fund will only invest
in futures contracts, options on futures contracts and other options contracts
that are subject to the jurisdiction of the CFTC after filing a notice of
eligibility and otherwise complying with the requirements of Section 4.5 of the
rules of the CFTC. Under that section, a Fund will not enter into any futures
contract or option on a futures contract if, as a result, the aggregate initial
margins and premiums required to establish such positions would exceed 5 percent
of a Fund's net assets.
The Funds have no current intention of investing in futures contracts and
options thereon for purposes other than hedging. The Equity Income Fund and
International Equity Fund may buy or sell stock index futures contracts, such as
contracts on the S&P 500 stock index. The Equity Income Fund may buy and sell
bond index futures contracts. In addition, all of the Funds may buy or sell
futures contracts on Treasury bills, Treasury bonds and other financial
instruments. The Funds may write covered options and buy options on the futures
contracts in which they may invest.
No Fund may purchase any call or put option on a futures contract if the
premiums associated with all such options held by the Fund would exceed 5
percent of the Fund's total assets as of the date the option is purchased. No
Fund may sell a put option if the exercise value of all put options written by
the Fund would exceed 50 percent of the Fund's total assets. Likewise, no Fund
may sell a call option if the exercise value of all call options written by the
Fund would exceed the value of the Fund's assets. In addition, the current
market value of all open futures positions held by a Fund may not exceed 50
percent of its total assets.
These instruments are often referred to as "derivatives," which may be defined
as financial instruments whose performance is derived, at least in part, from
the performance of another asset (such as a security, currency or an index of
securities).
3
<PAGE>
The Funds may write any covered options. An option is covered if, as long as a
Fund is obligated under the option, it owns an offsetting position in the
underlying security or maintains cash, U.S. Government Securities or other
liquid, securities with a value at all times sufficient to cover the Fund's
obligation under the option.
No assurance can be given, however, that any hedging or option income strategy
will succeed in achieving its intended result.
1. IN GENERAL
A call option is a contract pursuant to which the purchaser of the call option,
in return for a premium paid, has the right to buy the security (or index)
underlying the option at a specified exercise price at any time during the term
of the option. The writer of the call option, who receives the premium, has the
obligation upon exercise of the option to deliver the underlying security (or a
cash amount equal to the value of the index) against payment of the exercise
price during the option period.
A put option gives its purchaser, in return for a premium, the right to sell the
underlying security (or index) at a specified price during the term of the
option. The writer of the put option, who receives the premium, has the
obligation to buy the underlying security (or receive a cash amount equal to the
value of the index), upon exercise at the exercise price during the option
period.
The amount of premium received or paid for an option is based upon certain
factors, including the market price of the underlying security or index, the
relationship of the exercise price to the market price, the historical price
volatility of the underlying security or index, the option period and interest
rates.
There are a limited number of options contracts on securities indices and option
contracts may not be available on all securities that a Fund may own or seek to
own.
Bond and stock index futures contracts are bilateral agreements in which two
parties agree to take or make delivery of an amount of cash equal to a specified
dollar amount times the difference between the bond or stock index value at the
close of trading of the contract and the price at which the futures contract is
originally struck. No physical delivery of the securities comprising the index
is made. Generally, these futures contracts are closed out prior to the
expiration date of the contract.
Options on futures contracts are similar to stock options except that an option
on a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract rather than to purchase or sell
stock, at a specified exercise price at any time during the period of the
option. Upon exercise of the option, the delivery of the futures position to the
holder of the option will be accompanied by transfer to the holder of an
accumulated balance representing the amount by which the market price of the
futures contract exceeds, in the case of a call, or is less than, in the case of
a put, the exercise price of the option on the future.
COVERED CALLS AND HEDGING. Each Fund may purchase or sell (write) put and call
options on securities to seek to hedge against a decline in the value of
securities owned by it or an increase in the price of securities which it plans
to purchase. Hedging or option income strategies include the writing and
purchase of exchange-traded and over-the-counter options on individual
securities or financial indices and the purchase and sale of financial futures
contracts and related options. Whether or not used for hedging purposes, these
investment techniques involve risks that are different in certain respects from
the investment risks associated with the other investments of a Fund. Principal
among such risks are: (1) the possible failure of such instruments as hedging
techniques in cases where the price movements of the securities underlying the
options or futures do not follow the price movements of the portfolio securities
subject to the hedge; (2) potentially unlimited loss associated with futures
transactions and the possible lack of a liquid secondary market for closing out
a futures position; and (3) possible losses resulting from the inability of the
Subadviser to correctly predict the direction of stock prices, interest rates
and other economic factors. To the extent a Fund invests in foreign securities,
it may also invest in options on foreign currencies, foreign
4
<PAGE>
currency futures contracts and options on those futures contracts. Use of these
instruments is subject to regulation by the SEC, the options and futures
exchanges upon which options and futures are traded or the CFTC.
Except as otherwise noted in this SAI, the Funds will not use leverage in their
options and hedging strategies. In the case of transactions entered into as a
hedge, a Fund will hold securities, currencies or other options or futures
positions whose values are expected to offset ("cover") its obligations
thereunder. A Fund will not enter into a hedging strategy that exposes it to an
obligation to another party unless at least one of the following conditions is
met. A Fund owns either an offsetting ("covered") position; or it owns cash,
U.S. Government Securities or other liquid securities (or other assets as may be
permitted by the SEC) with a value sufficient at all times to cover its
potential obligations. When required by applicable regulatory guidelines, the
Funds will set aside cash, U.S. Government Securities or other liquid securities
(or other assets as may be permitted by the SEC) in a segregated account in the
prescribed amount. Any assets used for cover or held in a segregated account
cannot be sold or closed out while the hedging or option income strategy is
outstanding, unless they are replaced with similar assets. As a result, there is
a possibility that the use of cover or segregation involving a large percentage
of a Fund's assets could impede portfolio management or the Fund's ability to
meet redemption requests or other current obligations.
Options Strategies. A Fund may purchase put and call options written by others
and sell put and call options covering specified individual securities,
securities or financial indices or currencies. A put option (sometimes called a
"standby commitment") gives the buyer of the option, upon payment of a premium,
the right to deliver a specified amount of currency to the writer of the option
on or before a fixed date at a predetermined price. A call option (sometimes
called a "reverse standby commitment") gives the purchaser of the option, upon
payment of a premium, the right to call upon the writer to deliver a specified
amount of currency on or before a fixed date, at a predetermined price. The
predetermined prices may be higher or lower than the market value of the
underlying currency. A Fund may buy or sell both exchange-traded and
over-the-counter ("OTC") options. A Fund will purchase or write an option only
if that option is traded on a recognized U.S. options exchange or if the
Subadviser believes that a liquid secondary market for the option exists. When a
Fund purchases an OTC option, it relies on the dealer from whom it has purchased
the OTC option to make or take delivery of the currency underlying the option.
Failure by the dealer to do so would result in the loss of the premium paid by
the Fund as well as the loss of the expected benefit of the transaction. OTC
options and the securities underlying these options currently are treated as
illiquid securities by the Funds.
Upon selling an option, a Fund receives a premium from the purchaser of the
option. Upon purchasing an option the Fund pays a premium to the seller of the
option. The amount of premium received or paid by the Fund is based upon certain
factors, including the market price of the underlying securities, index or
currency, the relationship of the exercise price to the market price, the
historical price volatility of the underlying assets, the option period, supply
and demand and interest rates.
The Funds may purchase call options on debt securities that the Fund's
Subadviser intends to include in the Fund's portfolio in order to fix the cost
of a future purchase. Call options may also be purchased to participate in an
anticipated price increase of a security on a more limited risk basis than would
be possible if the security itself were purchased. If the price of the
underlying security declines, this strategy would serve to limit the potential
loss to the Fund to the option premium paid. Conversely, if the market price of
the underlying security increases above the exercise price and the Fund either
sells or exercises the option, any profit eventually realized will be reduced by
the premium paid. A Fund may similarly purchase put options in order to hedge
against a decline in market value of securities held in its portfolio. The put
enables the Fund to sell the underlying security at the predetermined exercise
price; thus the potential for loss to the Fund is limited to the option premium
paid. If the market price of the underlying security is lower than the exercise
price of the put, any profit the Fund realizes on the sale of the security would
be reduced by the premium paid for the put option less any amount for which the
put may be sold.
A Subadviser may write call options when it believes that the market value of
the underlying security will not rise to a value greater than the exercise price
plus the premium received. Call options may also be written to provide limited
protection against a decrease in the market price of a security, in an amount
equal to the call premium received less any transaction costs.
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Certain Funds may purchase and write put and call options on fixed income or
equity security indexes in much the same manner as the options discussed above,
except that index options may serve as a hedge against overall fluctuations in
the fixed income or equity securities markets (or market sectors) or as a means
of participating in an anticipated price increase in those markets. The
effectiveness of hedging techniques using index options will depend on the
extent to which price movements in the index selected correlate with price
movements of the securities, which are being hedged. Index options are settled
exclusively in cash.
2. RISKS
The Fund's use of options subjects the Fund to certain investment risks and
transaction costs to which it might not otherwise be subject. These risks
include:
o Dependence on the Subadviser's ability to predict movements in the prices
of individual securities and fluctuations in the general securities
markets.
o Imperfect correlations between movements in the prices of options and
movements in the price of the securities (or indices) hedged or used for
cover, which may cause a given hedge not to achieve its objective.
o The fact that the skills and techniques needed to trade these instruments
are different from those needed to select the securities in which the Funds
invest.
o Lack of assurance that a liquid secondary market will exist for any
particular instrument at any particular time, which, among other things,
may hinder a Fund's ability to limit exposures by closing its positions.
o The possible need to defer closing out of certain options, futures
contracts and related options to avoid adverse tax consequences.
Other risks include the inability of the Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price, and the possible loss of the entire premium paid for options
purchased by the Fund.
D. FOREIGN INVESTMENT
1. FOREIGN CURRENCY TRANSACTIONS
The International Equity Fund may conduct foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
exchange market or by entering into a forward foreign currency contract. A
forward foreign currency contract ("forward contract") involves an obligation to
purchase or sell a specific amount of a specific currency at a future date,
which may be any fixed number of days (usually less than one year) from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. Forward contracts are considered to be derivatives. The Fund enters
into forward contracts in order to "lock in" the exchange rate between the
currency it will deliver and the currency it will receive for the duration of
the contract. In addition, the Fund may enter into forward contracts to hedge
against risks arising from securities the Fund owns or anticipates purchasing,
or the U.S. dollar value of interest and dividends paid on those securities. The
Fund will not enter into forward contracts for speculative purposes. The Fund
will not have more than 25% of its total assets committed to forward contracts,
or maintain a net exposure to forward contracts that would obligate the Fund to
deliver an amount of foreign currency in excess of the value of the Fund's
investment securities or other assets denominated in that currency.
If the International Equity Fund makes delivery of the foreign currency at or
before the settlement of a forward contract, it may be required to obtain the
currency through the conversion of assets of the Fund into the currency. The
Fund may close out a forward contract obligating it to purchase a foreign
currency by selling an offsetting contract, in which case it will realize a gain
or a loss.
Foreign currency transactions involve certain costs and risks. The Fund incurs
foreign exchange expenses in converting assets from one currency to another.
Forward contracts involve a risk of loss if the Adviser is inaccurate in its
prediction of currency movements. The projection of short-term currency market
movements is extremely
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difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. The precise matching of forward contract amounts and the value
of the securities involved is generally not possible. Accordingly, it may be
necessary for the Fund to purchase additional foreign currency if the market
value of the security is less than the amount of the foreign currency the Fund
is obligated to deliver under the forward contract and the decision is made to
sell the security and make delivery of the foreign currency. The use of forward
contracts as a hedging technique does not eliminate fluctuations in the prices
of the underlying securities the Fund owns or intends to acquire, but it does
fix a rate of exchange in advance. Although forward contracts can reduce the
risk of loss due to a decline in the value of the hedged currencies, they also
limit any potential gain that might result from an increase in the value of the
currencies.
In addition, there is no systematic reporting of last sale information for
foreign currencies, and there is no regulatory requirement that quotations
available through dealers or other market sources be firm or revised on a timely
basis. Quotation information available is generally representative of very large
transactions in the interbank market. The interbank market in foreign currencies
is a global around-the-clock market. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, the Fund may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
The Fund has no present intention to enter into currency futures or options
contracts, but may do so in the future. The Fund might take positions in options
on foreign currencies in order to hedge against the risk of foreign exchange
fluctuation on foreign securities the Fund holds in its portfolio or which it
intends to purchase.
2. FOREIGN SECURITIES
All investments, domestic and foreign, involve certain risks. Investments in the
securities of foreign issuers may involve risks in addition to those normally
associated with investments in the securities of U.S. issuers. All foreign
investments are subject to risks of foreign political and economic instability,
adverse movements in foreign exchange rates, the imposition or tightening of
exchange controls or other limitations on repatriation of foreign capital, and
changes in foreign governmental attitudes towards private investment, possibly
leading to nationalization, increased taxation or confiscation of foreign
investors' assets.
Moreover, dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income available for distribution to a
Fund's shareholders; commission rates payable on foreign transactions are
generally higher than in the United States; foreign accounting, auditing and
financial reporting standards differ from those in the United States and,
accordingly, less information may be available about foreign companies than is
available about issuers of comparable securities in the United States; and
foreign securities may trade less frequently and with lower volume and may
exhibit greater price volatility than United States securities.
Changes in foreign exchange rates will also affect the value in U.S. dollars of
all foreign currency-denominated securities held by the Fund. Exchange rates are
influenced generally by the forces of supply and demand in the foreign currency
markets and by numerous other political and economic events occurring outside
the United States, many of which may be difficult, if not impossible, to
predict. Income from foreign securities will be received and realized in foreign
currencies, and the Fund is required to compute and distribute income in U.S.
dollars. Accordingly, a decline in the value of a particular foreign currency
against the U.S. dollar occurring after the Fund's income has been earned and
computed in U.S. dollars may require the Fund to liquidate portfolio securities
to acquire sufficient U.S. dollars to make a distribution. Similarly, if the
exchange rate declines between the time the Fund incurs expenses in U.S. dollars
and the time such expenses are paid, the Fund may be required to liquidate
additional foreign securities to purchase the U.S. dollars required to meet such
expenses.
The International Equity Fund may purchase foreign bank obligations. In addition
to the risks described above that are generally applicable to foreign
investments, the investments that the Fund makes in obligations of foreign
banks, branches or subsidiaries may involve further risks, including differences
between foreign banks and U.S. banks in applicable accounting, auditing and
financial reporting standards, and the possible establishment of exchange
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controls or other foreign government laws or restrictions applicable to the
payment of certificates of deposit or time deposits that may affect adversely
the payment of principal and interest on the securities held by the Fund.
E. REPURCHASE AGREEMENTS
1. IN GENERAL
Repurchase agreements are transactions in which a Fund purchases securities from
a bank or securities dealer and simultaneously commits to resell the securities
to the bank or dealer at an agreed-upon date and at a price reflecting a market
rate of interest unrelated to the purchased security. During the term of a
repurchase agreement, the Funds' custodian maintains possession of the purchased
securities and any underlying collateral, which is maintained at not less than
100% of the repurchase price. Repurchase agreements allow a Fund to earn income
on its uninvested cash for periods as short as overnight, while retaining the
flexibility to pursue longer-term investments. The Government Money Market Fund
will only enter into a repurchase agreement with a primary dealer that reports
to the Federal Reserve Bank of New York ("primary dealers") or one of the
largest 100 commercial banks in the United States. International Equity Fund may
enter into repurchase agreements with foreign entities.
2. REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are transactions in which a Fund sells a security
and simultaneously commits to repurchase that security from the buyer at an
agreed upon price on an agreed upon future date. The resale price in a reverse
repurchase agreement reflects a market rate of interest that is not related to
the coupon rate or maturity of the sold security. For certain demand agreements,
there is no agreed upon repurchase date and interest payments are calculated
daily, often based upon the prevailing overnight repurchase rate.
F. CONVERTIBLE SECURITIES
The Funds may only invest in convertible securities that are investment grade.
1. IN GENERAL
Convertible securities, which include convertible debt, convertible preferred
stock and other securities exchangeable under certain circumstances for shares
of common stock, are fixed income securities or preferred stock which generally
may be converted at a stated price within a specific amount of time into a
specified number of shares of common stock. A convertible security entitles the
holder to receive interest paid or accrued on debt or the dividend paid on
preferred stock until the convertible security matures or is redeemed,
converted, or exchanged. Before conversion, convertible securities have
characteristics similar to nonconvertible debt securities or preferred equity in
that they ordinarily provide a stream of income with generally higher yields
than do those of common stocks of the same or similar issuers. These securities
are usually senior to common stock in a company's capital structure, but usually
are subordinated to non-convertible debt securities.
Convertible securities have unique investment characteristics in that they
generally have higher yields than common stocks, but lower yields than
comparable non-convertible securities. Convertible securities are less subject
to fluctuation in value than the underlying stock since they have fixed income
characteristics; and they provide the potential for capital appreciation if the
market price of the underlying common stock increases.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security held by the Fund is called for redemption, the Fund will be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.
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2. RISKS
Investment in convertible securities generally entails less risk than investment
in the issuer's common stock. The extent to which such risk is reduced, however,
depends in large measure upon the degree to which the convertible security sells
above its value as a fixed income security.
3. VALUE OF CONVERTIBLE SECURITIES
The value of a convertible security is a function of its "investment value" and
its "conversion value". The investment value of a convertible security is
determined by comparing its yield with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege. The
conversion value is the security's worth, at market value, if converted into the
underlying common stock. The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may affect the convertible
security's investment value. The conversion value of a convertible security is
determined by the market price of the underlying common stock. If the conversion
value is low relative to the investment value, the price of the convertible
security is governed principally by its investment value and generally the
conversion value decreases as the convertible security approaches maturity. To
the extent the market price of the underlying common stock approaches or exceeds
the conversion price, the price of the convertible security will be increasingly
influenced by its conversion value. In addition, a convertible security
generally will sell at a premium over its conversion value determined by the
extent to which investors place value on the right to acquire the underlying
common stock while holding a fixed income security.
G. ILLIQUID AND RESTRICTED SECURITIES
Government Money Market Fund may not acquire securities or invest in repurchase
agreements if, as a result, more than 10% of the Fund's net assets (taken at
current value) would be invested in illiquid securities. No other Fund may
acquire securities or invest in repurchase agreements if, as a result, more than
15 percent of the Fund's net assets (taken at current value) would be invested
in illiquid securities.
1. IN GENERAL
The term "illiquid securities" means securities that cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which a Fund has valued the securities. Illiquid securities include
repurchase agreements not entitling the holder to payment of principal within
seven days, purchased over-the-counter options, securities which are not readily
marketable and restricted securities. Restricted securities, except as otherwise
determined by the Subadviser, are securities subject to contractual or legal
restrictions on resale because they have not been registered under the 1933 Act.
2. RISKS
Certain risks are associated with holding illiquid and restricted securities.
For instance, limitations on resale may have an adverse effect on the
marketability of a security and a Fund might also have to register a restricted
security in order to dispose of it, resulting in expense and delay. A Fund might
not be able to dispose of restricted or illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying
redemptions. There can be no assurance that a liquid market will exist for any
security at any particular time. Any security, including securities determined
by the Subadviser to be liquid, can become illiquid.
3. DETERMINING LIQUIDITY
The Board has the ultimate responsibility for determining whether specific
securities are liquid or illiquid and has delegated the function of making
determinations of liquidity to the Subadviser, pursuant to guidelines approved
by the Board. The Subadviser determines and monitors the liquidity of the
portfolio securities and reports periodically on its decisions to the Board. The
Subadviser takes into account a number of factors in reaching liquidity
decisions, including but not limited to: (1) the frequency of trades and
quotations for the security; (2) the number of dealers willing to purchase or
sell the security and the number of other potential buyers; (3) the willingness
of dealers to undertake to
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<PAGE>
make a market in the security; and (4) the nature of the marketplace trades,
including the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of the transfer.
An institutional market has developed for certain restricted securities.
Accordingly, contractual or legal restrictions on the resale of a security may
not be indicative of the liquidity of the security. If such securities are
eligible for purchase by institutional buyers in accordance with Rule 144A under
the 1933 Act or other exemptions, the Subadviser may determine that the
securities are not illiquid.
H. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Equity Income Fund may purchase securities offered on a "when-issued" basis
and may purchase or sell securities on a "forward commitment" basis. When such
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Normally, the settlement date occurs
within two months after the transaction, but delayed settlements beyond two
months may be negotiated. During the period between a commitment and settlement,
no payment is made for the securities purchased by the purchaser and, thus, no
interest accrues to the purchaser from the transaction. At the time the Fund
makes the commitment to purchase securities on a when-issued or delayed delivery
basis, the Fund will record the transaction as a purchase and thereafter reflect
the value each day of such securities in determining its net asset value.
1. RISKS
The use of when-issued transactions and forward commitments enables the Equity
Income Fund to hedge against anticipated changes in interest rates and prices.
For instance, in periods of rising interest rates and falling bond prices, the
Fund might sell securities that it owned on a forward commitment basis to limit
its exposure to falling prices. In periods of falling interest rates and rising
bond prices, the Fund might sell a security and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. However, if the Fund's Subadviser
forecasts incorrectly the direction of interest rate movements, the Fund might
be required to complete such when-issued or forward commitment transactions at
prices lower than the current market values.
The Fund enters into when-issued and forward commitment transactions only with
the intention of actually receiving or delivering the securities, as the case
may be. If the Fund subsequently chooses to dispose of its right to acquire a
when-issued security or its right to deliver or receive against a forward
commitment before the settlement date, it can incur a gain or loss. When-issued
securities may include bonds purchased on a "when, as and if issued" basis under
which the issuance of the securities depends upon the occurrence of a subsequent
event. Any significant commitment of the Fund's assets to the purchase of
securities on a "when, as and if issued" basis may increase the volatility of
its net asset value.
The Fund will establish and maintain a separate account with cash, U.S.
Government Securities and other liquid securities in an amount at least equal to
its commitments to purchase securities on a when-issued or delayed delivery
basis.
I. GENERAL MONEY MARKET FUND GUIDELINES
Government Money Market Fund will invest only in high-quality, U.S.
dollar-denominated instruments. As used herein, high-quality instruments include
those that (1) are rated (or, if unrated, are issued by an issuer with
comparable outstanding short-term debt that is rated) in one of the two highest
rating categories by two NRSROs or, if only one NRSRO has issued a rating, by
that NRSRO; or (2) are otherwise unrated and determined by the Subadviser,
pursuant to procedures adopted by the Board, to be of comparable quality.
Government Money Market Fund will not invest in a security that has received, or
is deemed comparable in quality to a security that has received, the second
highest rating by an NRSRO (a "second tier security") if, immediately after the
acquisition, the Fund would have invested more than (1) the greater of 1 percent
of its total assets in any single second tier security; or (2) 5 percent of its
total assets in second tier securities. Government Money Market Fund is subject
to certain
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issuer diversification rules described below under "Investment Limitations,
Non-fundamental Limitations." Appendix A to this SAI contains a description of
the rating categories of Standard & Poor's, Moody's and certain other NRSROs.
2. INVESTMENT LIMITATIONS
For purposes of all investment policies of the Funds: (1) the term 1940 Act
includes the rules thereunder, SEC interpretations and any exemptive order upon
which the Fund may rely; and (2) the term Code includes the rules thereunder,
IRS interpretations and any private letter ruling or similar authority upon
which the Fund may rely.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of a Fund's assets or purchases and redemptions of shares will not be considered
a violation of the limitation.
A fundamental policy of a Fund cannot be changed without the affirmative vote of
the lesser of: (1) 50 percent of the outstanding shares of the Fund; or (2) 67
percent of the shares of the Fund present or represented at a shareholders
meeting at which the holders of more than 50 percent of the outstanding shares
of the Fund are present or represented. The Board may change a nonfundamental
policy of a Fund be without shareholder approval.
A. FUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations, which are
fundamental policies of the Fund. Each Fund's investment objective is also
fundamental.
1. ISSUANCE OF SENIOR SECURITIES
No Fund may issue senior securities except pursuant to Section 18 of the 1940
Act and except that a Fund may borrow money subject to its investment limitation
on borrowing.
2. UNDERWRITING ACTIVITIES
No Fund may act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio securities, a Fund
may be deemed to be an underwriter for purpose of the 1933 Act.
3. CONCENTRATION
No Fund may purchase the securities of issuers (other than U.S. Government
Securities) conducting their business activity in the same industry if,
immediately after such purchase, the value of a Fund's investments in such
industry would comprise 25 percent or more of the value of its total assets.
4. PURCHASES AND SALES OF REAL ESTATE
No Fund may purchase or sell real estate or any interest therein, except that a
Fund may invest in securities issued or guaranteed by corporate or governmental
entities secured by real estate or interests therein, such as mortgage
pass-throughs and collateralized mortgage obligations, or issued by companies
that invest in real estate or interests therein.
5. PURCHASES AND SALES OF COMMODITIES
No Fund may purchase or sell physical commodities or contracts, options or
options on contracts to purchase or sell physical commodities; provided that
currency and currency-related contracts and contracts on indices will not be
deemed to be physical commodities.
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6. MAKING LOANS
No Fund may make loans to other persons except for the purchase of debt
securities that are otherwise permitted investments or loans of portfolio
securities through the use of repurchase agreements.
7. DIVERSIFICATION
Each Fund is "diversified" as that term is defined in the 1940 Act. Accordingly,
no Fund may purchase a security if, as a result; (1) more than 5 percent of a
Fund's total assets would be invested in the securities of a single issuer; or
(2) a Fund would own more than 10 percent of the outstanding voting securities
of a single issuer. This limitation applies only to 75 percent of a Fund's total
assets and does not apply to U.S. Government Securities.
B. NONFUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations, which are not
fundamental policies of the Fund.
1. BORROWING
No Fund's borrowings for other than temporary or emergency purposes or meeting
redemption requests may exceed an amount equal to 5 percent of the value of the
Fund's net assets.
2. ILLIQUID SECURITIES
Government Money Market Fund may not acquire securities or invest in repurchase
agreements if, as a result, more than 10% of the Fund's net assets (taken at
current value) would be invested in illiquid securities. No other Fund may
acquire securities or invest in repurchase agreements with respect to any
securities if, as result, more than 15 percent of the Fund's net assets (taken
at current value) would be invested in illiquid securities
3. SHORT SALES
No Fund may make short sales of securities (except short sales against the box).
4. PURCHASES ON MARGIN
No Fund may purchase securities on margin except for the use of short-term
credit necessary for the clearance of purchases and sales of portfolio
securities but a Fund may make margin deposits in connection with permitted
transactions in options, futures contracts and options on futures contracts.
5. PLEDGING
No Fund may pledge, mortgage, hypothecate or encumber any of its assets except
to secure permitted borrowings or to secure other permitted transactions. The
deposit in escrow of securities in connection with the writing of put and call
options, collateralized loans of securities and collateral arrangements with
respect to margin for futures contracts are not deemed to be pledges or
hypothecations for this purpose.
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3. PERFORMANCE DATA AND ADVERTISING
A. PERFORMANCE DATA
A Fund may quote performance in various ways. All performance information
supplied in advertising, sales literature, shareholder reports or other
materials is historical and is not intended to indicate future returns.
Performance information is reported on a class basis.
A Fund may compare any of its performance information with:
o Data published by independent evaluators such as Morningstar, Inc.,
Lipper, Inc., IBC Financial Data, Inc., CDA/Wiesenberger or other
companies which track the investment performance of investment
companies ("Fund Tracking Companies").
o The performance of other mutual funds.
o The performance of recognized stock, bond and other indices, including
but not limited to the Standard & Poor's 500(R) Index, the Russell
2000(R) Index, the Russell MidcapTM Index, the Russell 1000(R) Value
Index, the Russell 2500(R) Index, the Morgan Stanley - Europe,
Australian and Far East Index, the Dow Jones Industrial Average, the
Salomon Brothers Bond Index, the Shearson Lehman Bond Index, U.S.
Treasury bonds, bills or notes and changes in the Consumer Price Index
as published by the U.S. Department of Commerce.
Performance information may be presented numerically or in a table, graph, or
similar illustration.
Indices are not used in the management of a Fund but rather are standards by
which the Fund's Subadviser and shareholders may compare the performance of the
Fund to an unmanaged composite of securities with similar, but not identical,
characteristics as the Fund.
A Fund may refer to: (1) general market performances over past time periods such
as those published by Ibbotson Associates (for instance, its "Stocks, Bonds,
Bills and Inflation Yearbook"); (2) mutual fund performance rankings and other
data published by Fund Tracking Companies; and (3) material and comparative
mutual fund data and ratings reported in independent periodicals, such as
newspapers and financial magazines.
A Fund's performance will fluctuate in response to market conditions and other
factors.
B. PERFORMANCE CALCULATIONS
A Fund's performance may be quoted in terms of yield or total return.
1. SEC YIELD
Standardized SEC yields for a Fund used in advertising are computed by dividing
the Fund's interest income (in accordance with specific standardized rules) for
a given 30 day or one month period, net of expenses, by the average number of
shares entitled to receive income distributions during the period, dividing this
figure by the Fund's net asset value per share at the end of the period and
annualizing the result (assuming compounding of income in accordance with
specific standardized rules) in order to arrive at an annual percentage rate.
Capital gains and losses generally are excluded from these calculations.
Income calculated for the purpose of determining a Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed
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in yield calculations, the yield quoted for a Fund may differ from the rate of
distribution of income from the Fund over the same period or the rate of income
reported in the Fund's financial statements.
Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that a Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Fund's shares. Financial intermediaries may charge their customers that
invest in a Fund fees in connection with that investment. This will have the
effect of reducing the Fund's after-fee yield to those shareholders.
The yields of a Fund are not fixed or guaranteed, and an investment in a Fund is
not insured or guaranteed. Accordingly, yield information should not be used to
compare shares of a Fund with investment alternatives, which, like money market
instruments or bank accounts, may provide a fixed rate of interest. Also, it may
not be appropriate to compare a Fund's yield information directly to similar
information regarding investment alternatives that are insured or guaranteed.
Yield is calculated according to the following formula:
a - b
Yield = 2[(------ + 1)6 - 1]
cd
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the last
day of the period
MONEY MARKET FUNDS. Yield quotations for the Government Money Market Fund will
include an annualized historical yield, carried at least to the nearest
hundredth of one percent, based on a specific seven-calendar-day period and are
calculated by dividing the net change during the seven-day period in the value
of an account having a balance of one share at the beginning of the period by
the value of the account at the beginning of the period, and multiplying the
quotient by 365/7. For this purpose, the net change in account value reflects
the value of additional shares purchased with dividends declared on the original
share and dividends declared on both the original share and any such additional
shares, but would not reflect any realized gains or losses from the sale of
securities or any unrealized appreciation or depreciation on portfolio
securities. In addition, any effective annualized yield quotation used by the
Government Money Market Fund is calculated by compounding the current yield
quotation for such period by adding 1 to the product, raising the sum to a power
equal to 365/7, and subtracting 1 from the result. The standardized tax
equivalent yield is the rate an investor would have to earn from a fully taxable
investment in order to equal a Fund's yield after taxes. Tax equivalent yields
are calculated by dividing the Fund's yield by one minus the stated Federal or
combined Federal and state tax rate. If a portion of a Fund's yield is
tax-exempt, only that portion is adjusted in the calculation.
2. TOTAL RETURN CALCULATIONS
A Fund's total return shows its overall change in value, including changes in
share price and assuming all of the Fund's distributions are reinvested.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is calculated using a
formula prescribed by the SEC. To calculate standard average annual total
returns, a Fund: (1) determines the growth or decline in value of a hypothetical
historical investment in a Fund over a stated period; and (2) calculates the
annually compounded percentage rate that would have produced the same result if
the rate of growth or decline in value had been constant over the period. For
example, a cumulative return of 100 percent over ten years would produce an
average annual
14
<PAGE>
total return of 7.18 percent. While average annual returns are a convenient
means of comparing investment alternatives, investors should realize that
performance is not constant over time but changes from year to year, and that
average annual returns represent averaged figures as opposed to the actual
year-to-year performance of the Fund.
Average annual total return is calculated according to the following formula:
P (1+T) n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 payment made at the
beginning of the applicable period
Because average annual returns tend to smooth out variations in the Fund's
returns, shareholders should recognize that they are not the same as actual
year-by-year results.
Other Measures of Total Return. Standardized total return quotes may be
accompanied by non-standardized total return figures calculated by alternative
methods.
o A Fund may quote unaveraged or cumulative total returns, which reflect
a Fund's performance over a stated period of time.
o Total returns may be stated in their components of income and
capital (including capital gains and changes in share price) in
order to illustrate the relationship of these factors and their
contributions to total return.
Any total return may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period. Total returns may be quoted with or without
taking into consideration a Fund's front-end sales charge or contingent deferred
sales charge (if applicable).
Period total return is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual total
return above
15
<PAGE>
C. OTHER MATTERS
A Fund may also include various information in its advertising, sales
literature, shareholder reports or other materials including, but not limited
to: (1) portfolio holdings and portfolio allocation as of certain dates, such as
portfolio diversification by instrument type, by instrument, by location of
issuer or by maturity; (2) statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
by an investor to meet specific financial goals, such as funding retirement,
paying for children's education and financially supporting aging parents; (3)
information (including charts and illustrations) showing the effects of
compounding interest (compounding is the process of earning interest on
principal plus interest that was earned earlier; interest can be compounded at
different intervals, such as annually, quarterly or daily); (4) information
relating to inflation and its effects on the dollar; (for example, after ten
years the purchasing power of $25,000 would shrink to $16,621, $14,968, $13,465
and $12,100, respectively, if the annual rates of inflation were 4 percent, 5
percent, 6 percent and 7 percent, respectively); (5) information regarding the
effects of automatic investment and systematic withdrawal plans, including the
principal of dollar-cost averaging; (6) biographical descriptions of the Fund's
portfolio managers and the portfolio management staff of the Fund's Subadviser,
summaries of the views of the portfolio managers with respect to the financial
markets, or descriptions of the nature of the Subadviser's and its staff's
management techniques; (7) the results of a hypothetical investment in the Fund
over a given number of years, including the amount that the investment would be
at the end of the period; (8) the effects of earning Federal and, if applicable,
state tax-exempt income from the Fund or investing in a tax-deferred account,
such as an individual retirement account or Section 401(k) pension plan; (9) the
net asset value, net assets or number of shareholders of the Fund as of one or
more dates; and (10) a comparison of the Fund's operations to the operations of
other funds or similar investment products, such as a comparison of the nature
and scope of regulation of the products and the products' weighted average
maturity, liquidity, investment policies, and the manner of calculating and
reporting performance.
As an example of compounding, $1,000 compounded annually at 9.00 percent will
grow to $1,090 at the end of the first year (an increase in $90) and $1,118 at
the end of the second year (an increase in $98). The extra $8 that was earned on
the $90 interest from the first year is the compound interest. One thousand
dollars compounded annually at 9.00 percent will grow to $2,367 at the end of
ten years and $5,604 at the end of 20 years. Other examples of compounding are
as follows: at 7 percent and 12 percent annually, $1,000 will grow to $1,967 and
$3,106, respectively, at the end of ten years and $3,870 and $9,646,
respectively, at the end of twenty years. These examples are for illustrative
purposes only and are not indicative of a Fund's performance.
A Fund may advertise information regarding the effects of automatic investment
and systematic withdrawal plans, including the principal of dollar cost
averaging. In a dollar-cost averaging program, an investor invests a fixed
dollar amount in a Fund at period intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While such a strategy
does not insure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month for a period
of six months in a Fund the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
<TABLE>
<S> <C> <C> <C>
SYSTEMATIC SHARE SHARES
PERIOD INVESTMENT PRICE PURCHASED
------ ---------- ----- ---------
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
---- --- ----
Total Average Total
Invested $600 Price $15.17 Shares 41.81
</TABLE>
16
<PAGE>
In connection with its advertisements, a Fund may provide "shareholder's
letters" which serve to provide shareholders or investors an introduction into
the Fund's, the Trust's or any of the Trust's service provider's policies or
business practices. For instance, advertisements may provide for a message from
the Subadviser that it has for more than twenty-five years been committed to
quality products and outstanding service to assist its customers in meeting
their financial goals and setting forth the reasons that the Subadviser believes
that it has been successful as a portfolio manager.
With respect to the Funds that invest in municipal securities and distribute
Federally tax-exempt (and in certain cases state tax-exempt) dividends, the
Funds may advertise the benefits of and other effects of investing in municipal
securities. For instance, the Funds' advertisements may note that municipal
bonds have historically offered higher after tax yields than comparable taxable
alternatives for those persons in the higher tax brackets, that municipal bond
yields may tend to outpace inflation and that changes in tax law have eliminated
many of the tax advantages of other investments. The combined Federal and state
income tax rates for a particular state may also be described and advertisements
may indicate equivalent taxable and tax-free yields at various approximate
combined marginal Federal and state tax bracket rates. All yields so advertised
are for illustration only and not necessarily representative of a Fund's yield.
4. MANAGEMENT
Those officers, as well as certain other officers and Trustees of the Trust, may
be directors, officers or employees of (and persons providing services to the
Trust may include) Forum, its affiliates or affiliates of the Trust.
A. TRUSTEES AND OFFICERS
Trustees and Officers of the Trust. The names of the Trustees and officers of
the Trust, their position with the Trust, address, date of birth and principal
occupations during the past five years are set forth below. Each Trustee who is
an "interested person" (as defined by the 1940 Act) of the Trust is indicated by
an asterisk.
<TABLE>
<S> <C> <C>
NAME, ADDRESS AND AGE POSITION(S) WITH FUND PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE
YEARS
Christopher W. Hamm* Chairman of the Board of President, Memorial Group, Inc. since 1998
5847 San Felipe, Suite 4545 Trustees, Executive Director, CIBC Oppenheimer 1996-98
Houston, Texas 77002 President Vice President, Paine Webber 1993-96
Born: March 1967 Valuation Committee, Member(1)
John Y. Keffer* Trustee President and Director, Forum Financial
Two Portland Square Valuation Committee, Member(1) Services, Inc. for more than five years
Portland, Maine 04101 Director and sole shareholder (directly and
Born: July 1942 indirectly) Forum Financial Group LLC, which
owns (directly or indirectly) Forum Administrative
Services, LLC. Forum Shareholder Services, LLC
and Forum Investment Advisers, LLC Officer,
Director or Trustee, various funds managed
and distributed by FAdS or FFS
Jay Brammer Trustee Executive Vice President, Gibralter Properties,
9000 Keystone Crossing, Suite Audit Committee, Member(2) Inc., a real estate holding company, since 1995
1000 Executive Vice President, Gibraltar Mausoleum
Indianapolis, Indiana 46240 Corp., 1980-95
Born: August 1957
17
<PAGE>
J.B. Goodwin Trustee President, JBGoodwin Company, a comprehensive
3933 Steck Avenue, B-101 Audit Committee, Member(2) real estate and holding company, for more than
Austin, Texas 78759 five years
Born: December 1949
Robert Stillwell Trustee Attorney, Baker & Botts, a law firm, for more
3000 One Shell Plaza Audit Committee, Chairman(2) than five years
Houston, Texas 77002
Born: January 1937
Sara M. Morris Treasurer Managing Director, Forum Fund Services, LLC
Two Portland Square Treasurer and CFO, Forum Financial Group LLC
Portland, Maine 04101 since 1994
Born: September 1963 Officer, various funds managed and distributed
by FAdS or FFS
Thomas G. Sheehan Vice President Managing Director and Counsel, Forum Financial
Two Portland Square Group, LLC since 1993
Portland, Maine 04101 Officer, various funds managed and distributed
Born: November 1968 by FAdS or FFS
D. Blaine Riggle Secretary Assistant Counsel, Forum Financial Group, LLC,
Two Portland Square since 1998
Portland, Maine 04101 Associate Counsel, Wright Express Corporation
Born: November 1966 (a Fleet credit card company), 3/97 - 1/98
Associate at the law firm of Friedman, Babcock
& Gaythwaite, 1994 - 3/97 Officer, various
funds managed and distributed by FAdS or FFS
Stephen J. Barrett Assistant Secretary Manager of Client Services, Forum Financial
Two Portland Square Group, LLC since 1996
Portland, Maine 04101 Senior Product Manager, Fidelity Investments,
Born: November 1968 1994 - 1996
Officer, various funds managed and distributed
by FAdS or FFS
Marcella A. Cote Assistant Secretary Fund Administrator, Forum Financial Group, LLC,
Two Portland Square since 1998
Portland, Maine 04101 Budget Analyst, State of Maine Department of
Born: January 1947 Human Services, 2/97 - 5/98
Project Assistant, Muskie School of Public
Service, 1994 - 2/97 Officer, various funds
managed and distributed by FAdS or FFS
18
<PAGE>
Dawn L. Taylor Assistant Treasurer Tax Manager, Forum Financial Group, LLC, since
Two Portland Square 1997
Portland, Maine 04101 Senior Tax Accountant, Purdy, Bingham &
Born: May, 1964 Burrell, LLC, 1/97 - 10/97
Senior Fund Accountant, Forum Financial
Group, LLC, 9/94 - 1/97 Tax Consultant,
New England Financial Services, 6/86
- 9/94 Officer, various funds managed
and distributed by FAdS or FFS
</TABLE>
(1) The Valuation Committee is responsible for determining and monitoring the
value of the Funds' assets.
(2) The Audit Committee is responsible for meeting with the Trust's independent
certified public accountants to (i) review the arrangements and scope of any
audit; (ii) discuss matters of concern relating to the Trust's financial
statements, including any adjustments to such statements recommended by the
accountants, or other results of any audit; (iii) consider the accountants'
comments with respect to the Trust's financial policies, procedures, and
internal accounting controls; and (iv) review any form of opinion the
accountants propose to render to the Trust.
B. COMPENSATION OF TRUSTEES AND OFFICERS
Each Trustee receives annual fees of $5,000 and $500 for each Board meeting
attended and is paid $500 for each committee meeting attended on a date when a
Board meeting is not held.
Trustees are also reimbursed for travel and related expenses incurred in
attending meetings of the Board.
Trustees that are affiliated with the Adviser or other service provider to the
Funds receive no compensation for their services or reimbursement for their
associated expenses. No officer of the Trust is compensated by the Trust.
19
<PAGE>
The following table sets forth the fees paid to each Trustee by the Trust for
the fiscal year ending December 31, 1998.
<TABLE>
<S> <C> <C> <C> <C>
Pension or
Retirement
Aggregate Benefits Accrued Estimated Annual Total
Compensation from as Part of Fund Benefits upon Compensation from
Name, Position Trust Expenses Retirement Trust
- ------------------------------------- ------------------- ------------------- -------------------- -------------------
Christopher W. Hamm* $0 $0 $0 $0
Chairman of the Board of Trustees
and President
John Y. Keffer* $0 $0 $0 $0
Trustee
Jay Brammer $0 $0 $0 $0
Trustee
J.B. Goodwin $1,500 $0 $0 $1,500
Trustee
Robert Stillwell $1,500 $0 $0 $1,500
Trustee
</TABLE>
C. INVESTMENT ADVISER
1. SERVICES OF ADVISER
The Adviser serves as investment adviser to each Fund pursuant to an investment
advisory agreement with the Trust. Under that agreement, the Adviser furnishes
at its own expense all services, facilities and personnel necessary in
connection with managing a Fund's investments and effecting portfolio
transactions for a Fund
2. OWNERSHIP OF ADVISER/AFFILIATIONS
The Adviser is 100% owned by Christopher W. Hamm. The Adviser is registered as
an investment adviser with the SEC under the 1940 Act, as amended.
Christopher W. Hamm is the only officer of the Trust that is employed by the
Adviser (or affiliates of the Adviser).
3. FEES
The Adviser's fee is calculated as a percentage of the applicable Fund's average
net assets. The fee is accrued daily by the Funds and is paid monthly based on
average net assets for the previous month. The fee is allocated among the
classes of shares of a Fund based on the average net assets of each class during
the same period.
In addition to receiving its advisory fee from each Fund, the Adviser may also
act and be compensated as investment manager for its clients with respect to
assets that are invested in a Fund. If an investor in a Fund also has a
separately managed account with the Adviser with assets invested in the Fund,
the Adviser will credit an amount equal to all or a portion of the fees received
by the Adviser against any investment management fee received from a client.
20
<PAGE>
Each Fund pays Memorial Group, Inc. ("Memorial Group"), an affiliate of the
Adviser, a shareholder service fee of .25% of the Fund's average daily net
assets for the provision of administrative and shareholder relations services.
Memorial Group may pay all or a portion of the shareholder servicing fee to
other entities, which may be affiliated persons of Memorial Group or of a Fund,
for providing services to specified shareholders.
4. OTHER PROVISIONS OF ADVISER'S AGREEMENT
The Adviser's agreement must be approved at least annually by the Board or by
vote of the shareholders, and in either case by a majority of the Trustees who
are not parties to the agreement or interested persons of any such party.
The Adviser's agreement is terminable without penalty by the Trust with respect
to a Fund on 30 days' written notice when authorized either by vote of the
Fund's shareholders or by a vote of a majority of the Board, or by the Adviser
on 90 days' written notice to the Trust.
Under its agreement, the Adviser is not liable for any error of judgment,
mistake of law, or for any act or omission in the performance of its duties to a
Fund, except for willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its obligations
and duties under the agreement.
5. EXPENSE LIMITATIONS
FAdS and Memorial Group, Inc. have undertaken to assume certain expenses of the
Funds (or waive its fees). This undertaking is designed to place a maximum limit
on expenses (including all fees to be paid to the Adviser but excluding taxes,
interest, brokerage commissions and other portfolio transaction expenses and
extraordinary expenses) of .38% for the Government Money Market Fund, 1.05% for
the Equity Income Fund and 1.15% for the International Equity Fund.
6. SUBADVISERS
To assist it in carrying out its responsibility, the Adviser has retained the
following Subadvisers to render advisory services and make daily investment
decisions for each Fund pursuant to an investment subadvisory agreements with
the Adviser (the "Subadvisory Agreements").
The Glenmede Trust Company ("Glenmede"), One Liberty Place, 1650
Market Street, Ste. 1200, Philadelphia, Pennsylvania 19103, manages
the portfolio of the International Equity Fund. Glenmede is exempt
from registration as an investment adviser under the Investment
Advisers Act of 1940 ("Advisers Act"). For its services, Glenmede
receives an advisory fee (excluding waivers) from the Adviser at an
annual rate of 0.40% of the average daily net assets of the Fund
under $100 million, 0.35% of the average daily net assets of the Fund
between $100-200 million and .25% of the average daily net assets in
excess of $200 million.
PPM America, Inc. ("PPM"), 225 West Wacker Drive, Suite 1200,
Chicago, Illinois 60606, co-manages the portfolio of the Equity
Income Fund. PPM is a Delaware corporation that was organized in 1990
and is registered as an investment adviser under the Advisers Act.
For its services, PPM receives an advisory fee (excluding waivers)
from the Adviser at an annual rate of 0.30% of the Fund's average
daily net assets.
TCW Funds Management, Inc. ("TCW"), at 865 South Figueroa Street,
Ste. 1800, Los Angeles, California 90017, co-manages the portfolio of
the Equity Income Fund. TCW is a California corporation that was
organized in 1987 and is registered as an investment adviser under
the Advisers Act. For its services, PPM receives an advisory fee
(excluding waivers) from the Adviser at an annual rate of 0.35% of
the Fund's average daily net assets.
21
<PAGE>
A I M Capital Management Inc. ("AIM"), 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173, manages the portfolio of the Government
Money Market Fund. AIM was organized in 1986 and is registered as an
investment adviser under the Advisers Act. For its services, AIM
receives an advisory fee (excluding waivers) from the Adviser at an
annual rate of 0.10% of the average daily net assets of the Fund over
$1 billion and .075% thereafter.
The Adviser pays a fee to each of the Subadvisers. These fees do not increase
the fees paid by shareholders of the Funds. The amount of the fees paid by the
Adviser to each Subadviser may vary from time to time as a result of periodic
negotiations with the Subadviser regarding such matters as the nature and extent
of the services (other than investment selection and order placement activities)
provided by the Subadviser to the Fund, the increased cost and complexity of
providing services to the Fund, the investment record of the Subadviser in
managing the Fund and the nature and magnitude of the expenses incurred by the
Subadviser in managing the Fund's assets and by the Adviser in overseeing and
administering management of the Fund. However, the contractual fee payable to
each Fund by the Adviser for investment advisory services will not vary as a
result of those negotiations.
The Adviser performs internal due diligence on each Subadviser and monitors each
Subadviser's performance using its proprietary investment adviser selection and
monitoring process. The Adviser will be responsible for communicating
performance targets and evaluations to Subadvisers, supervising each
Subadviser's compliance with the Fund's fundamental investment objectives and
policies, authorizing Subadvisers to engage in certain investment techniques for
the Fund, and recommending to the Board of Trustees whether sub-advisory
agreements should be renewed, modified or terminated. The Adviser also may from
time to time recommend that the Board of Trustees replace one or more
Subadvisers or appoint additional Subadvisers, depending on the Adviser's
assessment of what combination of Subadvisers it believes will optimize each
Fund's chances of achieving its investment objectives. The sub-advisory
agreements with respect to the Funds are identical, except for the fees payable
and certain other non-material matters.
D. DISTRIBUTOR
1. DISTRIBUTOR; SERVICES AND COMPENSATION OF DISTRIBUTOR
FFS, the distributor (also known as principal underwriter) of the shares of each
Fund, is located at Two Portland Square, Portland, Maine 04101. FFS is a
registered broker-dealer and is a member of the National Association of
Securities Dealers, Inc.
FFS, FAdS, FAcS and the Transfer Agent are each controlled indirectly by Forum
Financial Group, LLC. John Y. Keffer controls Forum Financial Group, LLC.
Under its agreement with the Trust, FFS acts as the agent of the Trust in
connection with the offering of shares of the Funds. FFS continuosly distributes
shares of the Funds on a best efforts basis. FFS has no obligation to sell any
specific quantity of Fund shares.
2. OTHER PROVISIONS OF DISTRIBUTOR'S AGREEMENT
FFS's distribution agreement must be approved at least annually by the Board or
by vote of the shareholders, and in either case by a majority of the Trustees
who are not parties to the agreement or interested persons of any such party.
FFS's agreement is terminable without penalty by the Trust with respect to a
Fund on 60 days' written notice when authorized either by vote of the Fund's
shareholders or by a vote of a majority of the Board, or by FFS on 60 days'
written notice to the Trust.
Under its agreement, FFS is not liable for any error of judgment or mistake of
law or for any act or omission in the performance of its duties to a Fund,
except for willful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of reckless disregard of its obligations and duties
under the agreement.
22
<PAGE>
Under its agreement, FFS and certain related parties (such as FFS's officers and
persons that control FFS) are indemnified by the Trust against any and all
claims and expenses in any way related to FFS's actions (or failures to act)
that are consistent with FFS's contractual standard of care. This means that as
long as FFS satisfies its contractual duties, the Trust is responsible for the
costs of: (1) defending FFS against claims that FFS breached a duty it owed to
the Trust; and (2) paying judgments against FFS. The Trust is not required to
indemnify FFS if the Trust does not receive written notice of and reasonable
opportunity to defend against a claim against FFS in the Trust's own name or in
the name of FFS.
FFS may enter into agreements with selected broker-dealers, banks, or other
financial institutions for distribution of shares of the Fund. These financial
institutions may charge a fee for their services and may receive shareholders
service fees even though shares of the Fund are sold without sales charges or
distribution fees. These financial institutions may otherwise act as processing
agents, and will be responsible for promptly transmitting purchase, redemption
and other requests to the Fund.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through whom they purchase shares, which may include charges,
investment minimums, cutoff times and other restrictions in addition to, or
different from, those listed herein. Information concerning any charges or
services will be provided to customers by the financial institution. Investors
purchasing shares of the Fund in this manner should acquaint themselves with
their institution's procedures and should read the Prospectus and this SAI in
conjunction with any materials and information provided by their institution.
The financial institution and not its customers will be the shareholder of
record, although customers may have the right to vote shares depending upon
their arrangement with the institution.
E. OTHER FUND SERVICE PROVIDERS
1. ADMINISTRATOR
As administrator, pursuant to an agreement with the Trust, FAdS is responsible
for the supervision of the overall management of the Trust, providing the Trust
with general office facilities and providing persons satisfactory to the Board
to serve as officers of the Trust.
For its services, FAdS receives a fee from each Fund at an annual rate as
follows: 0.15 percent of the average daily net assets under $150 million of each
Fund and 0.10 percent of the average daily net assets over $150 million of each
Fund. Notwithstanding the above, the minimum fee per Fund shall be $30,000 per
year ($2500 per month). The fee is accrued daily by the Funds and is paid
monthly based on average net assets for the previous month.
Table 2 in Appendix B shows the dollar amount of the fees payable by the Trust
to FAdS, the amount of the fee waived by FAdS and the actual fee received by
FAdS.
FAdS's agreement is terminable without penalty by the Trust or by FAdS with
respect to a Fund on 60 days' written notice. Under the agreement, FAdS is not
liable for any error of judgment or mistake of law or for any act or omission in
the performance of its duties to a Fund, except for willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under the agreement.
2. FUND ACCOUNTANT
As fund accountant, pursuant to an agreement with the Trust, FAcS provides fund
accounting services to each Fund. These services include calculating the NAV per
share of each Fund (and class) and preparing the Funds' financial statements and
tax returns.
For its services, FAcS receives a fee from each Fund at an annual rate of
$36,000 plus surcharges of $6,000 to $24,000 for specified asset levels. FAcS is
paid additional surcharges of $12,000 per year for each of the following: a
portfolio with more than a specified number of securities positions and/or
international positions; investments in
23
<PAGE>
derivative instruments; percentages of assets invested in asset backed
securities; and, a monthly portfolio turnover rate of 10 percent or greater. The
fee is accrued daily by the Funds and is paid monthly based on the transactions
and positions for the previous month.
FAcS's agreement is terminable without penalty by the Trust or by FAcS with
respect to a Fund on 60 days' written notice. Under the agreement, FAcS is not
liable for any error of judgment or mistake of law or for any act or omission in
the performance of its duties to a Fund, except for willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under the agreement. Under the
agreement, in calculating a Fund's NAV per share, FAcS is deemed not to have
committed an error if the NAV per share it calculates is within 1/10 of 1
percent of the actual NAV per share (after recalculation). In addition, in
calculating NAV per share FAcS is not liable for the errors of others, including
the companies that supply securities prices to FAcS and the Funds.
3. TRANSFER AGENT
As transfer agent and distribution paying agent, pursuant to an agreement with
the Trust, the Transfer Agent maintains an account for each shareholder of
record of a Fund and is responsible for processing purchase and redemption
requests and paying distributions to shareholders of record. The Transfer Agent
is located at Two Portland Square, Portland, Maine 04101 and is registered as a
transfer agent with the SEC.
For its services, the Transfer Agent receives a fee from each Fund at an annual
rate of $24,000 and $25.00 per shareholder account and $12,000 per additional
share class. The fee is accrued daily by the Funds and is paid monthly. Table 4
in Appendix B shows the dollar amount of the fees payable by the Trust to the
Transfer Agent, the amount of the fee waived by the Transfer Agent and the
actual fee received by the Transfer Agent.
The Transfer Agent's agreement is terminable without penalty by the Trust or by
the Transfer Agent with respect to a Fund on 60 days' written notice. Under the
agreement, the Transfer Agent is not liable for any error of judgment or mistake
of law or for any act or omission in the performance of its duties to a Fund,
except for willful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of reckless disregard of its obligations and duties
under the agreement.
4. CUSTODIAN
As custodian, pursuant to an agreement with the Trust, Investors Bank & Trust
Company ("IBT") safeguards and controls the Equity Income Fund's cash and
securities, determines income and collects interest on Equity Income Fund
investments. IBT may employ foreign subcustodians to provide custody of Equity
Income Fund's foreign assets. IBT is located at 200 Clarendon Street, Boston,
Massachusetts 02105.
For its services, IBT receives a fee from the Equity Income Fund at an annual
rate as follows: (1) 0.01 percent of the average daily net assets of the Equity
Income Fund for the first $100 million in Equity Income Fund assets; (2) 0.005
percent of the average daily net assets of the Equity Income Fund for the
remaining Equity Income Fund assets. IBT is also paid certain transaction fees.
These fees are accrued daily by the Equity Income Fund and are paid monthly
based on average net assets and transactions for the previous month.
As custodian, pursuant to an agreement with the Trust, The Chase Manhattan Bank
("Chase") safeguards and controls the International Equity Fund's cash and
securities, determines income and collects interest on Fund investments. Chase
may employ foreign subcustodians to provide custody of the International Equity
Fund's foreign assets. Chase is located at 4 Chase MetroTech Center, 18th Floor,
Brooklyn, New York 11245.
For its services, Chase receives a fee from the International Equity Fund at an
annual rate as follows: 0.01 percent of the average daily net assets of the
International Equity Fund with a minimum annual fee of $30,000. Chase is also
paid certain transaction fees. These fees are accrued daily by the International
Equity Fund and are paid monthly based on average net assets and transactions
for the previous month.
5. LEGAL COUNSEL
Legal matters in connection with the issuance of shares of the Trust are passed
upon by the law firm of Seward & Kissel LLP, One Battery Park Plaza, New York,
New York 10004.
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6. INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, independent auditors, have been selected as auditors for
each Fund. The auditors audit the annual financial statements of the Funds and
provide the Funds with an audit opinion. The auditors also review certain
regulatory filings of the Funds and the Funds' tax returns.
5. PORTFOLIO TRANSACTIONS
A. HOW SECURITIES ARE PURCHASED AND SOLD
Purchases and sales of portfolio securities that are fixed income securities
(for instance, money market instruments and bonds, notes and bills) usually are
principal transactions. In a principal transaction, the party from whom the Fund
purchases or to whom the Fund sells is acting on its own behalf (and not as the
agent of some other party such as its customers). These securities normally are
purchased directly from the issuer or from an underwriter or market maker for
the securities. There usually are no brokerage commissions paid for these
securities.
Purchases and sales of portfolio securities that are equity securities (for
instance common stock and preferred stock) are generally effected: (1) if the
security is traded on an exchange, through brokers who charge commissions; and
(2) if the security is traded in the "over-the-counter" markets, in a principal
transaction directly from a market maker. In transactions on stock exchanges,
commissions are negotiated. When transactions are executed in an
over-the-counter market, the Adviser will seek to deal with the primary market
makers; but when necessary in order to obtain best execution, the Adviser will
utilize the services of others.
Purchases of securities from underwriters of the securities include a disclosed
fixed commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers include the spread between the
bid and asked price.
In the case of fixed income and equity securities traded in the over-the-counter
markets, there is generally no stated commission, but the price usually includes
an undisclosed commission or markup.
B. ADVISER RESPONSIBILITY FOR PURCHASES AND SALES
Each Subadviser places orders for the purchase and sale of securities with
brokers and dealers selected by and in the discretion of the Subadviser. No Fund
has any obligation to deal with any specific broker or dealer in the execution
of portfolio transactions. Allocations of transactions to brokers and dealers
and the frequency of transactions are determined by a Subadviser in its best
judgment and in a manner deemed to be in the best interest of the Fund rather
than by any formula.
Each Subadviser seeks "best execution" for all portfolio transactions. This
means that the Subadvisers seek the most favorable price and execution
available. A Subadviser's primary consideration in executing transactions for a
Fund is prompt execution of orders in an effective manner and at the most
favorable price available.
1. CHOOSING BROKER-DEALERS
The Funds may not always pay the lowest commission or spread available. Rather,
in determining the amount of commissions (including certain dealer spreads) paid
in connection with securities transactions, the Adviser or Subadviser of each
Fund takes into account factors such as size of the order, difficulty of
execution, efficiency of the executing broker's facilities (including the
research services described below) and any risk assumed by the executing broker.
Consistent with applicable rules and the Adviser or Subadviser's duties, the
Adviser or Subadviser may: (1) consider sales of shares of the Funds as a factor
in the selection of broker-dealers to execute portfolio transactions for a fund;
and (2) take into account payments made by brokers effecting transactions for a
Fund (these payments
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may be made to the Fund or to other persons on behalf of the Fund for services
provided to the Fund for which those other persons would be obligated to pay.
2. OBTAINING RESEARCH FROM BROKERS
The Adviser or Subadviser of each Fund may give consideration to research
services furnished by brokers to the Adviser or Subadviser for its use and may
cause a Fund to pay these brokers a higher amount of commission than may be
charged by other brokers. This research is designed to augment the Adviser or
Subadviser's own internal research and investment strategy capabilities. This
research may be used by the Adviser or Subadviser in connection with services to
clients other than the Funds, and not all research services may be used by the
Adviser or Subadviser in connection with the Funds. The Adviser or Subadviser's
fees are not reduced by reason of the Adviser or Subadviser's receipt of
research services.
The Adviser or Subadviser of each Fund has full brokerage discretion. It
evaluates the range of quality of a broker's services in placing trades
including securing best price, confidentiality, clearance and settlement
capabilities, promptness of execution and the financial stability of the
broker-dealer. Under certain circumstances, the value of research provided by a
broker-dealer may be a factor in the selection of a broker. This research would
include reports that are common in the industry. Typically, the research will be
used to service all of the Adviser or Subadviser's accounts although a
particular client may not benefit from all the research received on each
occasion. The nature of the services purchased for clients include industry
research reports and periodicals, quotation systems, software for portfolio
management and formal databases.
Occasionally, the Adviser or Subadviser may place an order with a broker and pay
a slightly higher commission than another broker might charge. If this is done
it will be because of the Adviser or Subadviser's need for specific research,
for specific expertise a firm may have in a particular type of transaction (due
to factors such as size or difficulty), or for speed/efficiency in execution.
Since most of the Adviser or Subadviser's brokerage commissions for research are
for economic research on specific companies or industries, and since the Adviser
or Subadviser is involved with a limited number of securities, most of the
commission dollars spent for industry and stock research directly benefit the
clients.
There are occasions on which portfolio transactions may be executed as part of
concurrent authorizations to purchase or sell the same securities for more than
one account served by the Adviser or Subadviser, some of which accounts may have
similar investment objectives. Although such concurrent authorizations
potentially could be either advantageous or disadvantageous to any one or more
particular accounts, they will be effected only when the Adviser or Subadviser
believes that to do so will be in the best interest of the affected accounts.
When such concurrent authorizations occur, the objective will be to allocate the
execution in a manner, which is deemed equitable to the accounts involved.
Clients are typically allocated securities with prices averaged on a per-share
or per-bond basis.
In some cases, the client may direct the Adviser or Subadviser to use a broker
or dealer of the client's choice. If the client directs the Adviser or
Subadviser to use a particular broker, the Adviser or Subadviser may not be
authorized to negotiate commissions and may be unable to obtain volume discounts
or best execution. In these cases, there could be some disparity in commission
charges among these clients.
3. COUNTERPARTY RISK
The Adviser or Subadviser of each Fund monitors the creditworthiness of
counterparties to each Fund's transactions and intends to enter into a
transaction only when it believes that the counterparty presents minimal and
appropriate credit risks.
4. TRANSACTIONS THROUGH AFFILIATES
The Adviser or Subadviser of each Fund may not effect brokerage transactions
through affiliates of the Adviser or Subadviser (or affiliates of those
persons). The Board has not adopted respective procedures.
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5. OTHER ACCOUNTS OF THE ADVISER OR SUBADVISER
Investment decisions for the Funds are made independently from those for any
other account or investment company that is or may in the future become managed
by the Adviser or Subadviser of each Fund . Investment decisions are the product
of many factors, including basic suitability for the particular client involved.
Thus, a particular security may be bought or sold for certain clients even
though it could have been bought or sold for other clients at the same time.
Likewise, a particular security may be bought for one or more clients when one
or more clients are selling the security. In some instances, one client may sell
a particular security to another client. It also sometimes happens that two or
more clients simultaneously purchase or sell the same security. In that event,
each day's transactions in such security are, insofar as is possible, averaged
as to price and allocated between such clients in a manner which, in the
respective Adviser or Subadviser's opinion, is equitable to each and in
accordance with the amount being purchased or sold by each. There may be
circumstances when purchases or sales of a portfolio security for one client
could have an adverse effect on another client that has a position in that
security. In addition, when purchases or sales of the same security for a Fund
and other client accounts managed by the Adviser or Subadviser occurs
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantages available to large denomination purchases or sales.
6. PORTFOLIO TURNOVER
The frequency of portfolio transactions of a Fund (the portfolio turnover rate)
will vary from year to year depending on many factors. Portfolio turnover rate
is reported in the Prospectus. From time to time a Fund may engage in active
short-term trading to take advantage of price movements affecting individual
issues, groups of issues or markets. An annual portfolio turnover rate of 100
percent would occur if all of the securities in a Fund were replaced once in a
period of one year. Higher portfolio turnover rates may result in increased
brokerage costs to a Fund and a possible increase in short-term capital gains or
losses.
C. SECURITIES OF REGULAR BROKER-DEALERS
From time to time a Fund may acquire and hold securities issued by its "regular
brokers and dealers" or the parents of those brokers and dealers. For this
purpose, regular brokers and dealers means the 10 brokers or dealers that: (1)
received the greatest amount of brokerage commissions during the Fund's last
fiscal year; (2) engaged in the largest amount of principal transactions for
portfolio transactions of the Fund during the Fund's last fiscal year; or (3)
sold the largest amount of the Fund's shares during the
6. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
A. GENERAL INFORMATION
Shareholders may effect purchases or redemptions or request any shareholder
privilege in person at the Transfer Agent's offices located at Two Portland
Square, Portland, Maine 04101.
The Funds accept orders for the purchase or redemption of shares on any weekday
except days when the New York Stock Exchange is closed.
B. ADDITIONAL PURCHASE INFORMATION
Shares of each Fund are sold on a continuous basis by the distributor at net
asset value ("NAV") per share without any sales charge. Accordingly, the
offering price per share is the same as the NAV per share. That information is
contained in the Funds' financial statements (specifically, in the statements of
assets and liabilities).
The Funds reserve the right to refuse any purchase request in excess of 1
percent.
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Fund shares are normally issued for cash only. In the Adviser or Subadviser's
discretion, however, a Fund may accept portfolio securities that meet the
investment objective and policies of a Fund as payment for Fund shares. A Fund
will only accept securities that: (1) are not restricted as to transfer by law
and are not illiquid; and (2) have a value that is readily ascertainable (and
not established only by valuation procedures).
1. IRAS
All contributions into an IRA through the automatic investing service are
treated as IRA contributions made during the year the investment is received.
2. UGMAS/UTMAS
If the trustee's name is not in the account registration of a gift or transfer
to minor ("UGMA/UTMA") account, the investor must provide a copy of the trust
document.
C. ADDITIONAL REDEMPTION INFORMATION
A Fund may redeem shares involuntarily to reimburse the Fund for any loss
sustained by reason of the failure of a shareholder to make full payment for
shares purchased by the shareholder or to collect any charge relating to
transactions effected for the benefit of a shareholder which is applicable to a
Fund's shares as provided in the Prospectus.
1. SUSPENSION OF RIGHT OF REDEMPTION
The right of redemption may not be suspended, except for any period during
which: (1) the New York Stock Exchange, Inc. is closed (other than customary
weekend and holiday closings) or during which the Securities and Exchange
Commission determines that trading thereon is restricted; (2) an emergency (as
determined by the SEC) exists as a result of which disposal by a Fund of its
securities is not reasonably practicable or as a result of which it is not
reasonably practicable for a Fund fairly to determine the value of its net
assets; or (3) the SEC may by order permit for the protection of the
shareholders of a Fund.
2. REDEMPTION-IN-KIND
Redemption proceeds normally are paid in cash. Payments may be made wholly or
partly in portfolio securities, however, if the Board determines conditions
exist which would make payment in cash detrimental to the best interests of a
Fund. If redemption proceeds are paid wholly or partly in portfolio securities,
brokerage costs may be incurred by the shareholder in converting the securities
to cash. The Trust has filed an election with the SEC pursuant to which a Fund
may only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1 percent of the Fund's total net
assets, whichever is less, during any 90-day period.
D. NAV DETERMINATION
In determining a Fund's NAV per share, securities for which market quotations
are readily available are valued at current market value using the last reported
sales price. If no sale price is reported, the average of the last bid and ask
price is used. If no average price is available, the last bid price is used. If
market quotations are not readily available, then securities are valued at fair
value as determined by the Board (or its delegate).
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E. DISTRIBUTIONS
Distributions of net investment income will be reinvested at a Fund's NAV per
share as of the last day of the period with respect to which the distribution is
paid. Distributions of capital gain will be reinvested at the NAV per share of a
Fund on the payment date for the distribution. Cash payments may be made more
than seven days following the date on which distributions would otherwise be
reinvested.
The per share net asset values of each class of shares of a Fund are expected to
be substantially the same. Under certain circumstances, however, the per share
net asset value of each class may vary.. The per share net asset value of each
class of a Fund eventually will tend to converge immediately after the payment
of dividends, which will differ by approximately the amount of the expense
accrual differential among the classes.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. The Funds' transfer agent and distributor or
financial institutions. These financial institutions may charge their customers
a fee for their services and are responsible for promptly transmitting purchase,
redemption and other requests to the Funds.
If you purchase shares through a financial institution, you will be subject to
the financial institution's procedures, which may include charges, limitations,
investment minimums, cutoff times and restrictions in addition to, or different
from, those applicable when you invest in a Fund directly. When you purchase a
Fund's shares through a financial institution, you may or may not be the
shareholder of record and, subject to your institution's procedures, you may
have Fund shares transferred into your name. There is typically a three-day
settlement period for purchases and redemptions through broker-dealers. Certain
financial institutions may also enter purchase orders with payment to follow.
You may not be eligible for certain shareholder services when you purchase
shares through a financial institution. Contact your financial institution for
further information. If you hold shares through a financial institution, the
Funds may confirm purchases and redemptions to the financial institution, which
will provide you with confirmations and periodic statements. The Funds are not
responsible for the failure of any financial institution to carry out its
obligations.
SHAREHOLDER SERVICES
RETIREMENT ACCOUNTS. The Funds may be a suitable investment vehicle for part or
all of the assets held in Traditional or Roth individual retirement accounts
(collectively, "IRAs"). Call the Funds at 1-888-263-5593 to obtain an IRA
account application. Generally, investment earnings in an IRA will be
tax-deferred until withdrawn. If certain requirements are met, investment
earnings held in a Roth IRA will not be taxed even when withdrawn. You may
contribute up to $2,000 annually to an IRA. Only contributions to Traditional
IRAs are tax-deductible. However, that deduction may be reduced if you or your
spouse is an active participant in an employer-sponsored retirement plan and you
or your spouse have adjusted gross income above certain levels. Your ability to
contribute to a Roth IRA also may be restricted if you or, if you are married,
you and your spouse have adjusted gross income above certain levels.
Your employer may also contribute to your IRA as part of a Savings Incentive
Match Plan for Employees, or "SIMPLE plan," established after December 31, 1996.
Under a SIMPLE plan, you may contribute up to $6,000 annually to your IRA, and
your employer must generally match such contributions up to 3 percent of your
annual salary. Alternatively, your employer may elect to contribute to your IRA
2 percent of the lesser of your earned income or $160,000.
This information on IRAs is based on regulations in effect as of January 1, 1999
and summarizes only some of the important federal tax considerations affecting
IRA contributions. These comments are not meant to be a substitute for tax
planning. Consult your tax advisors about your specific tax situation.
EXCHANGES
By making an exchange by telephone, the investor authorizes the Trust's transfer
agent to act on telephonic instructions believed by the Trust's transfer agent
to be genuine instructions from any person representing himself or herself to be
the investor. The records of the Trust's transfer agent of such instructions are
binding. The
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exchange procedures may be modified or terminated at any time upon appropriate
notice to shareholders. For Federal income tax purposes, exchanges are treated
as sales on which a purchaser will realize a capital gain or loss depending on
whether the value of the shares redeemed is more or less than the shareholder's
basis in such shares at the time of such transaction.
Shareholders of the Funds' Shares may purchase, with the proceeds from a
redemption of all or part of their shares, shares of the same class of any other
Fund of the Trust.
REDEMPTIONS
In addition to the situations described in the Prospectus with respect to the
redemptions of shares, the Trust may redeem shares involuntarily to reimburse a
Fund for any loss sustained by reason of the failure of a shareholder to make
full payment for shares purchased by the shareholder or to collect any charge
relating to transactions effected for the benefit of a shareholder which is
applicable to a Fund's shares as provided in the Prospectus from time to time.
Proceeds of redemptions normally are paid in cash. However, payments may be made
wholly or partially in portfolio securities if the Board determines that payment
in cash would be detrimental to the best interests of the Fund. If payment for
shares redeemed is made wholly or partially in portfolio securities, brokerage
costs may be incurred by the shareholder in converting the securities to cash.
7. TAXATION
The tax information set forth in the Prospectus and the information in this
section relates solely to U.S. federal income tax law and assumes that each Fund
qualifies as a regulated investment company (as discussed below). Such
information is only a summary of certain key federal income tax considerations
affecting each Fund and its shareholders that are not described in the
prospectus. No attempt has been made to present a complete explanation of the
federal tax treatment of the Funds or the implications to shareholders. The
discussions here and in the prospectus are not intended as substitutes for
careful tax planning.
This "Taxation" section is based on the Code and applicable regulations in
effect on the date hereof. Future legislative or administrative changes or court
decisions may significantly change the tax rules applicable to the Funds and
their shareholders. Any of these changes or court decisions may have a
retroactive effect.
ALL INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISOR AS TO THE FEDERAL, STATE,
LOCAL AND FOREIGN TAX PROVISIONS APPLICABLE TO THEM.
A. QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund intends for each tax year to qualify as a "regulated investment
company" under the Code. This qualification does not involve governmental
supervision of management or investment practices or policies of a Fund.
The tax year-end of each Fund is December 31 (the same as the Fund's fiscal year
end).
1. MEANING OF QUALIFICATION
As a regulated investment company, a Fund will not be subject to federal income
tax on the portion of its investment company taxable income (i.e., taxable
interest, dividends, net short-term capital gains and other taxable ordinary
income, net of expenses) and net capital gain (i.e., the excess of net long-term
capital gains over net short-term capital losses) that it distributes to
shareholders. In order to qualify as a regulated investment company a Fund must
satisfy the following requirements:
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o The Fund must distribute at least 90 percent of its investment company
taxable income for the tax year. (Certain distributions made by a Fund
after the close of its tax year are considered distributions
attributable to the previous tax year for purposes of satisfying this
requirement.)
o The Fund must derive at least 90 percent of its gross income from
certain types of income derived with respect to its business of
investing in securities.
o The Fund must satisfy the following asset diversification test at the
close of each quarter of the Fund's tax year: (1) at least 50 percent
of the value of the Fund's assets must consist of cash and cash items,
U.S. government securities, securities of other regulated investment
companies, and securities of other issuers (as to which the Fund has
not invested more than 5 percent of the value of the Fund's total
assets in securities of the issuer and as to which the Fund does not
hold more than 10 percent of the outstanding voting securities of the
issuer); and (2) no more than 25 percent of the value of the Fund's
total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated
investment companies), or in two or more issuers which the Fund
controls and which are engaged in the same or similar trades or
businesses.
o Each Fund generally intends to operate in a manner such that it will
not be liable for federal income tax.
2. FAILURE TO QUALIFY
If for any tax year a Fund does not qualify as a regulated investment company,
all of its taxable income (including its net capital gain) will be subject to
tax at regular corporate rates without any deduction for dividends to
shareholders, and the dividends will be taxable to the shareholders as ordinary
income to the extent of a Fund's current and accumulated earnings and profits. A
portion of these distributions generally may be eligible for the
dividends-received deduction in the case of corporate shareholders.
Failure to qualify as a regulated investment company would thus have a negative
impact on a Fund's income and performance. It is possible that a Fund will not
qualify as a regulated investment company in any given tax year.
B. FUND DISTRIBUTIONS
Each Fund anticipates distributing substantially all of its investment company
taxable income for each tax year. These distributions are taxable to
shareholders as ordinary income. Except in the case of Government Money Market
Fund, a portion of these distributions may qualify for the 70 percent
dividends-received deduction for corporate shareholders.
Each Fund anticipates distributing substantially all of its net capital gain for
each tax year. These distributions generally are made only once a year, usually
in November or December, but the Funds may make additional distributions of net
capital gain at any time during the year. These distributions are taxable to
shareholders as long-term capital gain, regardless of how long a shareholder has
held shares and do not qualify for the dividends-received deduction.
Each Fund may have capital loss carryovers (unutilized capital losses from prior
years). These capital loss carryovers (which can be used for up to eight years)
may be used to offset any current capital gain (whether short-or long-term). All
capital loss carryovers are listed in the Funds' financial statements. Any such
losses may not be carried back.
Distributions by a Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital. Return of capital
distributions reduce the shareholder's tax basis in the shares and are treated
as gain from the sale of the shares to the extent the shareholder's basis would
be reduced below zero.
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All distributions by a Fund will be treated in the manner described above
regardless of whether the distribution is paid in cash or reinvested in
additional shares of the Fund (or of another Fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date.
A shareholder may purchase shares whose net asset value at the time reflects
undistributed net investment income or recognized capital gain, or unrealized
appreciation in the value of the assets of a Fund. Distributions of these
amounts are taxable to the shareholder in the manner described above, although
the distribution economically constitutes a return of capital to the
shareholder.
Shareholders purchasing shares of a Fund just prior to the ex-dividend date of a
distribution will be taxed on the entire amount of the distribution received,
even though the net asset value per share on the date of the purchase reflected
the amount of the distribution.
Ordinarily, shareholders are required to take distributions by a Fund into
account in the year in which they are made. A distribution declared in October,
November or December of any year and payable to shareholders of record on a
specified date in those months, however, is deemed to be received by the
shareholders (and made by the Fund) on December 31 of that calendar year if the
distribution is actually paid in January of the following year.
Shareholders will be advised annually as to the U.S. federal income tax
consequences of distributions made (or deemed made) to them during the year.
C. CERTAIN TAX RULES APPLICABLE TO THE FUNDS TRANSACTIONS
For federal income tax purposes, when put and call options purchased by a Fund
expire unexercised, the premiums paid by the Fund give rise to short- or
long-term capital losses at the time of expiration (depending on the length of
the respective exercise periods for the options). When put and call options
written by a Fund expire unexercised, the premiums received by the Fund give
rise to short-term capital gains at the time of expiration. When a Fund
exercises a call, the purchase price of the underlying security is increased by
the amount of the premium paid by a Fund. When a Fund exercises a put, the
proceeds from the sale of the underlying security are decreased by the premium
paid. When a put or call written by a Fund is exercised, the purchase price
(selling price in the case of a call) of the underlying security is decreased
(increased in the case of a call) for tax purposes by the premium received.
Certain listed options, regulated futures contracts and forward currency
contracts are considered "Section 1256 contracts" for federal income tax
purposes. Section 1256 contracts held by a Fund at the end of each tax year are
"marked to market" and treated for federal income tax purposes as though sold
for fair market value on the last business day of the tax year. Gains or losses
realized by a Fund on Section 1256 contracts generally are considered 60 percent
long-term and 40 percent short-term capital gains or losses. Each Fund can elect
to exempt its Section 1256 contracts, which are part of a "mixed straddle" (as
described below) from the application of Section 1256.
Any option, futures contract, or other position entered into or held by a Fund
in conjunction with any other position held by the Fund may constitute a
"straddle" for federal income tax purposes. A straddle of which at least one,
but not all, the positions are Section 1256 contracts, may constitute a "mixed
straddle". In general, straddles are subject to certain rules that may affect
the character and timing of a Fund's gains and losses with respect to straddle
positions by requiring, among other things, that: (1) the loss realized on
disposition of one position of a straddle may not be recognized to the extent
that the Fund has unrealized gains with respect to the other position in such
straddle; (2) the Fund's holding period in straddle positions be suspended while
the straddle exists (possibly resulting in gain being treated as short-term
capital gain rather than long-term capital gain); (3) the losses recognized with
respect to certain straddle positions which are part of a mixed straddle and
which are non-Section 1256 positions be treated as 60 percent long-term and 40
percent short-term capital loss; (4) losses recognized with respect to certain
straddle positions which would otherwise constitute short-term capital losses be
treated as long-term capital losses; and (5) the deduction of interest and
carrying charges attributable to certain straddle positions may be deferred.
Various elections are available to a Fund, which may mitigate the effects of the
straddle rules,
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particularly with respect to mixed straddles. In general, the straddle rules
described above do not apply to any straddles held by a Fund all of the
offsetting positions of which consist of Section 1256 contracts.
D. FEDERAL EXCISE TAX
A 4 percent non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to: (1)
98 percent of its ordinary taxable income for the calendar year; and (2) 98
percent of its capital gain net income for the one-year period ended on October
31 (or december 31, if elected by the Fund) of the calendar year. The balance of
the Fund's income must be distributed during the next calendar year. A Fund will
be treated as having distributed any amount on which it is subject to income
tax.
For purposes of calculating the excise tax, each Fund: (1) reduces its capital
gain net income (but not below its net capital gain) by the amount of any net
ordinary loss for the calendar year and (2) excludes foreign currency gains and
losses incurred after October 31 of any year (or December 31 if it has made the
election described above) in determining the amount of ordinary taxable income
for the current calendar year. The Fund will include foreign currency gains and
losses incurred after October 31 in determining ordinary taxable income for the
succeeding calendar year.
Each Fund intends to make sufficient distributions of its ordinary taxable
income and capital gain net income prior to the end of each calendar year to
avoid liability for the excise tax. Investors should note, however, that a Fund
might in certain circumstances be required to liquidate portfolio investments to
make sufficient distributions to avoid excise tax liability.
E. SALE OR REDEMPTION OF SHARES
In general, a shareholder will recognize gain or loss on the sale or redemption
of shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases (for example, by reinvesting dividends) other shares of the Fund
within 30 days before or after the sale or redemption (a so called "wash sale").
If disallowed, the loss will be reflected in an upward adjustment to the basis
of the shares purchased. In general, any gain or loss arising from the sale or
redemption of shares of a Fund will be considered capital gain or loss and will
be long-term capital gain or loss if the shares were held for longer than one
year. Any capital loss arising from the sale or redemption of shares held for
six months or less, however, is treated as a long-term capital loss to the
extent of the amount of capital gain received on such shares. In determining the
holding period of such shares for this purpose, any period during which a
shareholder's risk of loss is offset by means of options, short sales or similar
transactions is not counted. Capital losses in any year are deductible only to
the extent of capital gains plus, in the case of a noncorporate taxpayer, $3,000
of ordinary income.
F. BACKUP WITHHOLDING
A Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31 percent of distributions, and the proceeds of redemptions of shares,
paid to any shareholder: (1) who has failed to provide its correct taxpayer
identification number; (2) who is subject to backup withholding by the IRS for
failure to report the receipt of interest or dividend income properly; or (3)
who has failed to certify to a Fund that it is not subject to backup withholding
or that it is a corporation or other "exempt recipient." Backup withholding is
not an additional tax; any amounts so withheld may be credited against a
shareholder's federal income tax or refunded.
G. Foreign Taxes
Income received by a Fund may also be subject to foreign income taxes, including
withholding taxes. It is impossible to determine the effective rate of foreign
tax in advance since the amount of a Fund's assets to be invested within various
countries is not known. In the case of International Equity Fund, if more than
50% of the value of the Fund's total assets at the close of its taxable year
consists of stocks or securities of foreign corporations, the Fund will be
eligible and intends to file an election with the Internal Revenue Service to
pass through to its
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shareholders the amount of foreign taxes paid by the Fund. However, there can be
no assurance that the Fund will be able to do so. Pursuant to this election a
shareholder will be required to (i) include in gross income (in addition to
taxable dividends actually received) his pro rata share of foreign taxes paid by
the Fund, (ii) treat his pro rata share of such foreign taxes as having been
paid by him, and (iii) either deduct such pro rata share of foreign taxes in
computing his taxable income or treat such foreign taxes as a credit against
United States federal income taxes. Shareholders who are not liable for federal
income taxes, such as retirement plans qualified under section 401 of the Code,
will not be affected by any such pass-through of taxes by the Fund. No deduction
for foreign taxes may be claimed by an individual shareholder who does not
itemize deductions. In addition, certain shareholders may be subject to rules
which limit or reduce their ability to fully deduct, or claim a credit for,
their pro rata share of the foreign taxes paid by the Fund. A shareholder's
foreign tax credit with respect to a dividend received from the Fund will be
disallowed unless the shareholder holds shares in the Fund on the ex-dividend
date and for at least 15 other days during the 30-day period beginning 15 days
prior to the ex-dividend date. Each shareholder will be notified within 60 days
after the close of the International Equity Fund's taxable year whether the
foreign taxes paid by the Fund will pass through for that year and, if so, such
notification will designate (i) the shareholder's portion of the foreign taxes
paid to each such country and (ii) the portion of dividends that represents
income derived from sources within each such country.
The federal income tax status of each year's distributions by the Fund will be
reported to shareholders and to the Internal Revenue Service. The foregoing is
only a general description of the treatment of foreign taxes under the United
States federal income tax laws. Because the availability of a foreign tax credit
or deduction will depend on the particular circumstances of each shareholder,
potential investors are advised to consult their own tax advisers.
H. FOREIGN SHAREHOLDERS
Taxation of a shareholder who under the Code is a nonresident alien individual,
foreign trust or estate, foreign corporation, or foreign partnership ("foreign
shareholder"), depends on whether the income from a Fund is "effectively
connected" with a U.S. trade or business carried on by the foreign shareholder.
If the income from a Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, distributions of ordinary income
(and short-term capital gains) paid to a foreign shareholder will be subject to
U.S. withholding tax at the rate of 30 percent (or lower applicable treaty rate)
upon the gross amount of the distribution. The foreign shareholder generally
would be exempt from U.S. federal income tax on gain realized on the sale of
shares of a Fund and distributions of net capital gain from a Fund.
If the income from a Fund is effectively connected with a U.S. trade or business
carried on by a foreign shareholder, then ordinary income distributions, capital
gain distributions, and any gain realized upon the sale of shares of a Fund will
be subject to U.S. federal income tax at the rates applicable to U.S. citizens
or U.S.
corporations.
In the case of a noncorporate foreign shareholder, a Fund may be required to
withhold U.S. federal income tax at a rate of 31 percent on distributions that
are otherwise exempt from withholding (or taxable at a reduced treaty rate),
unless the shareholder furnishes the Fund with proper notification of its
foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty might be different from those described herein.
The tax rules of other countries with respect to distributions from a Fund can
differ from the U.S. federal income taxation rules described above. These
foreign rules are not discussed herein. Foreign shareholders are urged to
consult their own tax advisers as to the consequences of foreign tax rules with
respect to an investment in a Fund.
I. STATE AND LOCAL TAXES
The tax rules of the various states of the U.S. and their local jurisdictions
with respect to distributions from a Fund can differ from the U.S. federal
income taxation rules described above. These state and local rules are not
discussed
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herein. Shareholders are urged to consult their tax advisers as to the
consequences of state and local tax rules with respect to an investment in a
Fund.
8. OTHER MATTERS
GENERAL INFORMATION
The Trust was organized as a business trust under the laws of the State of
Delaware on November 26, 1997. The Trust has operated under that name and as an
investment company since that date.
The Trust is registered as an open-end, management investment company under the
1940 Act. The Trust offers shares of beneficial interest in its series (the
Funds) and in classes of shares of those series. As of the date hereof, the
Trust consisted of the following shares of beneficial interest:
Shares of each of Government Money Market Fund, Equity Income Fund,
International Equity Fund, Government Bond Fund, Corporate Bond Fund, Growth
Equity Fund and Value Equity Fund.
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate series and may divide series into classes of
shares; the costs of doing so will be borne by the Trust.
The Trust and each Fund will continue indefinitely until terminated.
2. CLASSES OF SHARES
Each class of a Fund may have a different expense ratio and its expenses will
affect each class' performance. For more information on any other class of
shares of the Fund, investors may contact the Transfer Agent.
3. SHAREHOLDER VOTING AND OTHER RIGHTS
Each share of each series of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency, shareholder service and administration expenses) are borne
solely by those shares and each class votes separately with respect to the
provisions of any Rule 12b-1 plan which pertains to the class and other matters
for which separate class voting is appropriate under applicable law. Generally,
shares will be voted in the aggregate without reference to a particular series
or class, except if the matter affects only one series or class or voting by
series or class is required by law, in which case shares will be voted
separately by series or class, as appropriate. Delaware law does not require the
Trust to hold annual meetings of shareholders, and it is anticipated that
shareholder meetings will be held only when specifically required by federal or
state law. There are no conversion or preemptive rights in connection with
shares of the Trust.
All shares, when issued in accordance with the terms of the offering, will be
fully paid and nonassessable.
A shareholder in a series is entitled to the shareholder's pro rata share of all
distributions arising from that series' assets and, upon redeeming shares, will
receive the portion of the series' net assets represented by the redeemed
shares.
Shareholders representing 10 percent or more of the Trust's (or a Fund's)
outstanding shares may, as set forth in the Trust Instrument, call meetings of
the Trust (or Fund) for any purpose related to the Trust (or Fund), including,
in the case of a meeting of the Trust, the purpose of voting on removal of one
or more Trustees.
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4. CERTAIN REORGANIZATION TRANSACTIONS
The Trust or any Fund may be terminated upon the sale of its assets to, or
merger with, another open-end, management investment company or series thereof,
or upon liquidation and distribution of its assets. Generally such terminations
must be approved by the vote of the holders of a majority of the outstanding
shares of the Trust or the Fund. The Trustees may, without prior shareholder
approval, change the form of organization of the Trust by merger, consolidation
or incorporation. Under the Trust Instrument, the Trustees may, without
shareholder vote, cause the Trust to merge or consolidate into one or more
trusts, partnerships or corporations or cause the Trust to be incorporated under
Delaware law, so long as the surviving entity is an open-end, management
investment company that will succeed to or assume the Trust's registration
statement.
B. FUND OWNERSHIP
As of August 16, 1999, officers and trustees of the Trust owned no shares of the
Funds of the Trust.
From time to time, certain shareholders may own a large percentage of the shares
of a Fund. Accordingly, those shareholders may be able to greatly affect (if not
determine) the outcome of a shareholder vote. As of August, 1999, and prior to
the public offering of the Funds, Forum Financial Group, LLC, beneficially owned
100% of and may be deemed to control each Fund. It is unlikely, however, that
Forum Financial Group, LLC, a limited liability company organized under the laws
of Delaware, will continue to control each Fund. "Control" for these purposes is
the ownership of 25% or more a Fund's voting securities.
C. LIMITATIONS ON SHAREHOLDERS' AND TRUSTEES' LIABILITY
Delaware law provides that Fund shareholders are entitled to the same
limitations of personal liability extended to stockholders of private
corporations for profit. In the past, the securities regulators of some states,
however, have indicated that they and the courts in their state may decline to
apply Delaware law on this point. The Trust Instrument contains an express
disclaimer of shareholder liability for the debts, liabilities, obligations and
expenses of the Trust and requires that a disclaimer be given in each contract
entered into or executed by the Trust or the Trustees. The Trust's Trust
Instrument (the document that governs the operation of the Trust) provides for
indemnification out of each series' property of any shareholder or former
shareholder held personally liable for the obligations of the series. The Trust
Instrument also provides that each series shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the series and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which Delaware law does not apply, no contractual limitation of
liability was in effect, and the portfolio is unable to meet its obligations.
FAdS believes that, in view of the above, there is no risk of personal liability
to shareholders.
The Trust Instrument provides that the Trustees shall not be liable to any
person other than the Trust or its shareholders. In addition, the Trust
Instrument provides that the Trustees shall not be liable for any conduct
whatsoever, provided that a Trustee is not protected against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
D. REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Trust's registration statement filed with the SEC under the 1933 Act with
respect to the securities offered hereby. The registration statement, including
the exhibits filed therewith, may be examined at the office of the SEC in
Washington, D.C.
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Statements contained herein and in the Prospectus as to the contents of any
contract or other documents are not necessarily complete, and, in each instance,
are qualified by, reference is made to the copy of such contract or other
documents filed as exhibits to the registration statement.
E. FINANCIAL STATEMENTS
Because the Funds have not commenced operations as of the date of this SAI,
financial statements for the Funds are not yet available.
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APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
A. CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
1. MOODY'S INVESTORS SERVICE
Aaa Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present that make
the long-term risk appear somewhat larger than the Aaa securities.
A Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to
impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate,
and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this
class.
B Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small.
Caa Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds that are rated Ca represent obligations that are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
Note Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
a ranking in the lower end of that generic rating category.
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2. STANDARD AND POOR'S CORPORATION
AAA An obligation rated AAA has the highest rating assigned by Standard
& Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's
capacity to meet its financial commitment on the obligation is still
strong.
BBB An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet
its financial commitment on the obligation.
Note Obligations rated BB, B, CCC, CC, and C are regarded as having
significant speculative characteristics. BB indicates the least
degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, large
uncertainties or major exposures to adverse conditions may outweigh
these.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions that
could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to
meet its financial commitment on the obligation. Adverse business,
financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the
obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment, and
is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation. In the event of adverse business, financial, or economic
conditions, the obligor is not likely to have the capacity to meet
its financial commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
D An obligation rated D is in payment default. The D rating category
is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard
& Poor's believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Note Plus (+) or minus (-). The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing
within the major rating categories.
The `r' symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or
volatility of expected returns that are not addressed in the credit
rating. Examples include: obligations linked or indexed to equities,
currencies, or commodities; obligations exposed to severe prepayment
risk-such as interest-only or principal-only mortgage securities;
and obligations with unusually risky interest terms, such as inverse
floaters.
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3. DUFF & PHELPS CREDIT RATING CO.
AAA Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest
AA but may vary slightly from time to time because of economic
conditions.
A+,A, Protection factors are average but adequate. However, risk factors
A- are more variable in periods of greater economic stress.
BBB+ Below-average protection factors but still considered sufficient
BBB for prudent investment. Considerable variability in risk during
BBB- economic cycles.
BB+ Below investment grade but deemed likely to meet obligations
BB when due. Present or prospective financial protection factors
BB- fluctuate according to industry conditions. Overall quality may
move up or down frequently within this category.
B+ Below investment grade and possessing risk that obligations will
B not be met when due. Financial protection factors will fluctuate
B- widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the
rating within this category or into a higher or lower rating
grade.
CCC Well below investment-grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be
substantial with unfavorable economic/industry conditions, and/or
with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
DP Preferred stock with dividend arrearages.
4. FITCH IBCA, INC.
INVESTMENT GRADE
AAA Highest credit quality. `AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low expectation
of credit risk. They indicate very strong capacity for timely payment
of financial commitments. This capacity is not significantly
vulnerable to foreseeable events.
A High credit quality. `A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable
to changes in circumstances or in economic conditions than is the case
for higher ratings.
A-3
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BBB Good credit quality. `BBB' ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair
this capacity. This is the lowest investment-grade category.
SPECULATIVE GRADE
BB Speculative. `BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse
economic change over time; however, business or financial
alternatives may be available to allow financial commitments to be
met. Securities rated in this category are not investment grade.
B Highly speculative. `B' ratings indicate that significant credit risk
is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and
economic environment.
CCC, High default risk. Default is a real possibility. Capacity for
CC, C meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A `CC' rating indicates
that default of some kind appears probable. `C' ratings signal
imminent default.
DDD, Default. Securities are not meeting current obligations and are
DD, D extremely speculative. `DDD' designates the highest potential for
recovery of amounts outstanding on any securities involved. For U.S.
corporates, for example, `DD' indicates expected recovery of 50
percent - 90 percent of such outstandings, and `D' the lowest
recovery potential, i.e. below 50 percent.
PREFERRED STOCK
1. MOODY'S INVESTORS SERVICE
aaa An issue that is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and
the least risk of dividend impairment within the universe of
preferred stocks.
aa An issue that is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance
the earnings and asset protection will remain relatively well
maintained in the foreseeable future.
a An issue that is rated "a" is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat
greater than in the "aaa" and "aa" classification, earnings and
asset protection are, nevertheless, expected to be maintained at
adequate levels.
baa An issue that is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured.
Earnings and asset protection appear adequate at present but may be
questionable over any great length of time.
Ba An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings
and asset protection may be very moderate and not well safeguarded
during adverse periods. Uncertainty of position characterizes
preferred stocks in this class.
B An issue that is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and
maintenance of other terms of the issue over any long period of
time may be small.
caa An issue that is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
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ca An issue that is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of
eventual payments.
c This is the lowest rated class of preferred or preference stock.
Issues so rated can thus be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Note Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification: the modifier 1 indicates that the security ranks in
the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.
2. STANDARD & POOR'S
AAA This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.
AA A preferred stock issue rated AA also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for
issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
BBB An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to make payments for a preferred stock in this category
than for issues in the A category.
BB, B, CCC Preferred stock rated BB, B, and CCC is regarded, on balance,
as predominantly speculative with respect to the issuer's capacity
to pay preferred stock obligations. BB indicates the lowest degree
of speculation and CCC the highest. While such issues will likely
have some quality and protective characteristics, large
uncertainties or major risk exposures to adverse conditions outweigh
these.
CC The rating CC is reserved for a preferred stock issue that is in
arrears on dividends or sinking fund payments, but that is currently
paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer in
default on debt instruments.
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard
& Poor's does not rate a particular type of obligation as a matter
of policy.
Note Plus (+) or minus (-). To provide more detailed indications of
preferred stock quality, ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing
within the major rating categories.
C. SHORT TERM RATINGS
1. MOODY'S INVESTORS SERVICE
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
PRIME-1 Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced
by many of the following characteristics:
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o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
o Well-established access to a range of financial markets and
assured sources of alternate liquidity.
PRIME-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations.
This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage
ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity
is maintained.
PRIME-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt
protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
NOT PRIME
Issuers rated Not Prime do not fall within any of the Prime
rating categories.
STANDARD & POOR'S
A-1 A short-term obligation rated A-1 is rated in the highest
category by Standard & Poor's. The obligor's capacity to meet
its financial commitment on the obligation is strong. Within
this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions than obligations in higher rating categories.
However, the obligor's capacity to meet its financial commitment
on the obligation is satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of
the obligor to meet its financial commitment on the obligation.
B A short-term obligation rated B is regarded as having
significant speculative characteristics. The obligor currently
has the capacity to meet its financial commitment on the
obligation; however, it faces major ongoing uncertainties that
could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
C A short-term obligation rated C is currently vulnerable to
nonpayment and is dependent upon favorable business, financial,
and economic conditions for the obligor to meet its financial
commitment on the obligation.
D A short-term obligation rated D is in payment default. The D
rating category is used when payments on an obligation are not
made on the date due even if the applicable grace period has not
expired, unless Standard & Poor's believes that such payments
will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.
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FITCH IBCA, INC.
F1 Obligations assigned this rating have the highest capacity for
timely repayment under Fitch IBCA's national rating scale for that
country, relative to other obligations in the same country. This
rating is automatically assigned to all obligations issued or
guaranteed by the sovereign state. Where issues possess a
particularly strong credit feature, a "+" is added to the assigned
rating.
F2 Obligations supported by a strong capacity for timely repayment
relative to other obligors in the same country. However, the
relative degree of risk is slightly higher than for issues
classified as `A1' and capacity for timely repayment may be
susceptible to adverse changes in business, economic, or financial
conditions.
F3 Obligations supported by an adequate capacity for timely repayment
relative to other obligors in the same country. Such capacity is
more susceptible to adverse changes in business, economic, or
financial conditions than for obligations in higher categories.
B Obligations for which the capacity for timely repayment is
uncertain relative to other obligors in the same country. The
capacity for timely repayment is susceptible to adverse changes in
business, economic, or financial conditions.
C Obligations for which there is a high risk of default to other
obligors in the same country or which are in default.
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Copy of the Trust Instrument of the Registrant dated November 25, 1997
(see Note 1).
(b) Not Applicable.
(c) See Sections 2.02, 2.04 and 2.06 of the Trust Instrument filed as
Exhibit (a).
(d)(1) Investment Advisory Agreement between Registrant and Forum Investment
Advisors, LLC dated as of March 13, 1998 as amended June 29, 1999 (see
Note 2).
(2) Investment Advisory Agreement between Registrant and Memorial
Investment Advisors, Inc., dated as of August 10, 1999 (filed
herewith).
(3) Form of Investment Subadvisory Agreement between Registrant, Memorial
Investment Advisors, Inc. and TCW Funds Management, Inc., dated as
of August __, 1999 (filed herewith).
(4) Investment Subadvisory Agreement between Registrant, Memorial
Investment Advisors, Inc. and The Glenmede Trust Company, dated as
of August 10, 1999 (filed herewith).
(5) Investment Subadvisory Agreement between Registrant, Memorial
Investment Advisors, Inc. and PPM America, Inc., dated as of August
10, 1999 (filed herewith).
(e) Distribution Agreement between Registrant and Forum Fund Services, LLC
dated as of May 1, 1999 (see Note 2).
(f) None.
(g)(1) Transfer Agency and Services Agreement between Registrant and Forum
Shareholder Services, LLC dated March 13, 1998 (see Note 2).
(2) Custodian Agreement between Registrant and BankBoston dated as of March
9, 1998 (see Note 2).
(3) Custodian Agreement between Registrant and The Chase Manhattan Bank
dated August 13, 1999 (filed herewith).
(h)(1) Administration Agreement between Registrant and Forum Administrative
Services, LLC dated March 13, 1998 (see Note 2).
(2) Fund Accounting Agreement between Registrant and Forum Accounting
Services, LLC dated as of March 13, 1998 (see Note 2).
(i)(1) Opinion of counsel to Registrant (see Note 3).
(2) Consent of Seward & Kissel, LLP (see Note 2).
(j) Not applicable.
(k) None.
(l) Investment Representation letter of original purchaser of shares of
Registrant (see Note 3).
(m) Rule 12b-1 Plan (see Note 4).
(n) Financial Data Schedules (see Note 2).
(o) 18f-3 Plan adopted by Registrant (see Note 2).
Other Exhibits:
Power of Attorney of Jay Brammer (see Note 3).
Power of Attorney of J.B. Goodwin (see Note 3).
<PAGE>
Power of Attorney of Christopher W. Hamm (see Note 3).
Power of Attorney of Robert Stillwell (see Note 3).
Power of Attorney of John Y. Keffer (see Note 3).
- ---------------
Note:
1 Exhibit incorporated by reference as filed in initial N-1A filing on
December 4, 1997, accession number 0001004402-97-000244.
2 Exhibit incorporated by reference as filed in post-effective amendment
number 4 on April 29, 1999, accession number 0001004402-99-000244.
3 Exhibit incorporated by reference as filed in post-effective amendment
number 1 on March 18, 1998, accession number 0001004402-98- 000197.
4 Exhibit incorporated by reference as filed in pre-effective amendment
number 2 on March 4, 1998, accession number 0001004402-98-000161.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 25. INDEMNIFICATION
SECTION 10.02 of the Registrant's Trust Instrument provides as follows:
SECTION 10.02 INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in Subsection
10.02(b): (i) every Person who is, or has been, a Trustee or officer of
the Trust (hereinafter referred to as a "Covered Person") shall be
indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or
having been a Trustee or officer and against amounts paid or incurred by
him in the settlement thereof; (ii) the words "claim," "action," "suit,"
or "proceeding" shall apply to all claims, actions, suits or proceedings
(civil, criminal or other, including appeals), actual or threatened
while in office or thereafter, and the words "liability" and "expenses"
shall include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before which the
proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office or (B) not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust; or (ii)
in the event of a settlement, unless there has been a determination
that such Trustee or officer did not engage in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office, (x) by the court or other body approving the
settlement; (y) by at least a majority of those Trustees who are
neither Interested Persons of the Trust nor are parties to the matter
based upon a review of readily available facts (as opposed to a full
trial-type inquiry); or (z) by written opinion of independent legal
counsel based upon a review of readily available facts (as opposed to a
full trial-type inquiry); provided, however, that any Shareholder may,
by appropriate legal proceedings, challenge any such determination by
the Trustees or by independent counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall
not be exclusive of or affect any other rights to which any Covered
<PAGE>
Person may now or hereafter be entitled, shall continue as to a Person
who has ceased to be a Covered Person and shall inure to the benefit of
the heirs, executors and administrators of such a Person. Nothing
contained herein shall affect any rights to indemnification to which
Trust personnel, other than Covered Persons, and other Persons may be
entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character
described in Subsection 10.02(a) may be paid by the Trust or Series
from time to time prior to final disposition thereof upon receipt of an
undertaking by or on behalf of such Covered Person that such amount
will be paid over by him to the Trust or Series if it is ultimately
determined that he is not entitled to indemnification under this
Section 10.02; provided, however, that either (i) such Covered Person
shall have provided appropriate security for such undertaking, (ii) the
Trust is insured against losses arising out of any such advance
payments or (iii) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, or
independent legal counsel in a written opinion, shall have determined,
based upon a review of readily available facts (as opposed to a
trial-type inquiry or full investigation), that there is reason to
believe that such Covered Person will be found entitled to
indemnification under Section 10.02.
Section 4 of the Investment Advisory Agreements provides in substance as
follows:
SECTION 4. STANDARD OF CARE
The Trust shall expect of the Adviser, and the Adviser will give the
Trust the benefit of, the Adviser's best judgment and efforts in
rendering its services to the Trust, and as an inducement to the
Adviser's undertaking these services the Adviser shall not be liable
hereunder for any mistake of judgment or in any event whatsoever,
except for lack of good faith, breach of fiduciary duty, willful
misfeasance, bad faith or gross negligence in the performance of the
Adviser's duties hereunder, or by reason of the Adviser's reckless
disregard of its obligations and duties hereunder and except as
otherwise provided by law.
Section 3 of the Administration Agreement provides as follows:
SECTION 3. STANDARD OF CARE AND RELIANCE
(a) Forum shall be under no duty to take any action except as
specifically set forth herein or as may be specifically agreed to by
Forum in writing. Forum shall use its best judgment and efforts in
rendering the services described in this Agreement. Forum shall not be
liable to the Trust or any of the Trust's shareholders for any action
or inaction of Forum relating to any event whatsoever in the absence of
bad faith, willful misfeasance or gross negligence in the performance
of Forum's duties or obligations under this Agreement or by reason of
Forum's reckless disregard of its duties and obligations under this
Agreement.
(b) The Trust agrees to indemnify and hold harmless Forum, its
employees, agents, directors, officers and managers and any person who
controls Forum within the meaning of section 15 of the Securities Act
or section 20 of the Securities Exchange Act of 1934, as amended,
("Forum Indemnitees") against and from any and all claims, demands,
actions, suits, judgments, liabilities, losses, damages, costs,
charges, reasonable counsel fees and other expenses of every nature and
character arising out of or in any way related to Forum's actions taken
or failures to act with respect to a Fund that are consistent with the
standard of care set forth in Section 3(a) or based, if applicable, on
good faith reliance upon an item described in Section 3(d) (a "Claim").
The Trust shall not be required to indemnify any Forum Indemnitee if,
prior to confessing any Claim against the Forum Indemnitee, Forum or
the Forum Indemnitee does not give the Trust written notice of and
<PAGE>
reasonable opportunity to defend against the claim in its own name or
in the name of the Forum Indemnitee.
(c) Forum agrees to indemnify and hold harmless the Trust, its
employees, agents, trustees and officers against and from any and all
claims, demands, actions, suits, judgments, liabilities, losses,
damages, costs, charges, reasonable counsel fees and other expenses of
every nature and character arising out of Forum's actions taken or
failures to act with respect to a Fund that are not consistent with the
standard of care set forth in Section 3(a). Forum shall not be required
to indemnify the Trust if, prior to confessing any Claim against the
Trust, the Trust does not give Forum written notice of and reasonable
opportunity to defend against the claim in its own name or in the name
of the Trust.
(d) A Forum Indemnitee shall not be liable for any action taken or
failure to act in good faith reliance upon:
(i) the advice of the Trust or of counsel, who may be counsel to
the Trust or counsel to Forum, and upon statements of accountants,
brokers and other persons reasonably believed in good faith by
Forum to be experts in the matter upon which they are consulted;
(ii) any oral instruction which it receives and which it
reasonably believes in good the person or persons transmitted
faith authorized by the Board to give such oral instruction. Forum
shall have no duty or obligation to make any inquiry or effort of
certification of such oral instruction;
(iii) any written instruction or certified copy of any resolution
of the Board, and Forum may rely upon the genuineness of any such
document or copy thereof reasonably believed in good faith by
Forum to have been validly executed; or
(iv) any signature, instruction, request, letter of transmittal,
certificate, opinion of counsel, statement, instrument, report,
notice, consent, order, or other document reasonably believed in
good faith by Forum to be genuine and to have been signed or
presented by the Trust or other proper party or parties; and no
Forum Indemnitee shall be under any duty or obligation to inquire
into the validity or invalidity or authority or lack thereof of
any statement, oral or written instruction, resolution, signature,
request, letter of transmittal, certificate, opinion of counsel,
instrument, report, notice, consent, order, or any other document
or instrument which Forum reasonably believes in good faith to be
genuine.
(e) Forum shall not be liable for the errors of other service
providers to the Trust including the errors of printing services
(other than to pursue all reasonable claims against the pricing
service based on the pricing services' standard contracts entered
into by Forum) and errors in information provided by an investment
adviser (including prices and pricing formulas and the untimely
transmission of trade information), custodian or transfer agent to
the Trust.
Sections 7 and 8 of the Distribution Agreement provide:
SECTION 7. STANDARD OF CARE
(a) The Distributor shall use its best judgment and reasonable efforts
in rendering services to the Trust under this Agreement but shall be
under no duty to take any action except as specifically set forth
herein or as may be specifically agreed to by the Distributor in
writing. The Distributor shall not be liable to the Trust or any of the
Trust's shareholders for any error of judgment or mistake of law, for
any loss arising out of any investment, or for any action or inaction
of the Distributor in the absence of bad faith, willful misfeasance or
gross negligence in the performance of the Distributor's duties or
<PAGE>
obligations under this Agreement or by reason or the Distributor's
reckless disregard of its duties and obligations under this Agreement
(b) The Distributor shall not be liable for any action taken or failure
to act in good faith reliance upon:
(i) the advice of the Trust or of counsel, who may be counsel to
the Trust or counsel to the Distributor;
(ii) any oral instruction which it receives and which it
reasonably believes in good faith was transmitted by the person or
persons authorized by the Board to give such oral instruction (the
Distributor shall have no duty or obligation to make any inquiry
or effort of certification of such oral instruction);
(iii) any written instruction or certified copy of any resolution
of the Board, and the Distributor may rely upon the genuineness of
any such document or copy thereof reasonably believed in good
faith by the Distributor to have been validly executed; or
(iv) any signature, instruction, request, letter of transmittal,
certificate, opinion of counsel, statement, instrument, report,
notice, consent, order, or other document reasonably believed in
good faith by the Distributor to be genuine and to have been
signed or presented by the Trust or other proper party or parties;
and the Distributor shall not be under any duty or obligation to
inquire into the validity or invalidity or authority or lack
thereof of any statement, oral or written instruction, resolution,
signature, request, letter of transmittal, certificate, opinion of
counsel, instrument, report, notice, consent, order, or any other
document or instrument which the Distributor reasonably believes
in good faith to be genuine.
(c) The Distributor shall not be responsible or liable for any failure
or delay in performance of its obligations under this Agreement arising
out of or caused, directly or indirectly, by circumstances beyond its
reasonable control including, without limitation, acts of civil or
military authority, national emergencies, labor difficulties, fire,
mechanical breakdowns, flood or catastrophe, acts of God, insurrection,
war, riots or failure of the mails, transportation, communication or
power supply. In addition, to the extent the Distributor's obligations
hereunder are to oversee or monitor the activities of third parties,
the Distributor shall not be liable for any failure or delay in the
performance of the Distributor's duties caused, directly or indirectly,
by the failure or delay of such third parties in performing their
respective duties or cooperating reasonably and in a timely manner with
the Distributor.
SECTION 8. INDEMNIFICATION
(a) The Trust will indemnify, defend and hold the Distributor, its
employees, agents, directors and officers and any person who controls
the Distributor within the meaning of section 15 of the Securities Act
or section 20 of the 1934 Act ("Distributor Indemnitees") free and
harmless from and against any and all claims, demands, actions, suits,
judgments, liabilities, losses, damages, costs, charges, reasonable
counsel fees and other expenses of every nature and character
(including the cost of investigating or defending such claims, demands,
actions, suits or liabilities and any reasonable counsel fees incurred
in connection therewith) which any Distributor Indemnitee may incur,
under the Securities Act, or under common law or otherwise, arising out
of or based upon any alleged untrue statement of a material fact
contained in the Registration Statement or the Prospectuses or arising
out of or based upon any alleged omission to state a material fact
required to be stated in any one thereof or necessary to make the
statements in any one thereof not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished in writing to the Trust in connection with the preparation of
<PAGE>
the Registration Statement or exhibits to the Registration Statement by
or on behalf of the Distributor ("Distributor Claims").
After receipt of the Distributor's notice of termination under Section
13(e), the Trust shall indemnify and hold each Distributor Indemnitee
free and harmless from and against any Distributor Claim; provided,
that the term Distributor Claim for purposes of this sentence shall
mean any Distributor Claim related to the matters for which the
Distributor has requested amendment to the Registration Statement and
for which the Trust has not filed a Required Amendment, regardless of
with respect to such matters whether any statement in or omission from
the Registration Statement was made in reliance upon, or in conformity
with, information furnished to the Trust by or on behalf of the
Distributor.
(b) The Trust may assume the defense of any suit brought to enforce any
Distributor Claim and may retain counsel of good standing chosen by the
Trust and approved by the Distributor, which approval shall not be
withheld unreasonably. The Trust shall advise the Distributor that it
will assume the defense of the suit and retain counsel within ten (10)
days of receipt of the notice of the claim. If the Trust assumes the
defense of any such suit and retains counsel, the defendants shall bear
the fees and expenses of any additional counsel that they retain. If
the Trust does not assume the defense of any such suit, or if
Distributor does not approve of counsel chosen by the Trust or has been
advised that it may have available defenses or claims that are not
available to or conflict with those available to the Trust, the Trust
will reimburse any Distributor Indemnitee named as defendant in such
suit for the reasonable fees and expenses of any counsel that person
retains. A Distributor Indemnitee shall not settle or confess any claim
without the prior written consent of the Trust, which consent shall not
be unreasonably withheld or delayed.
(c) The Distributor will indemnify, defend and hold the Trust and its
several officers and trustees (collectively, the "Trust Indemnitees"),
free and harmless from and against any and all claims, demands,
actions, suits, judgments, liabilities, losses, damages, costs,
charges, reasonable counsel fees and other expenses of every nature and
character (including the cost of investigating or defending such
claims, demands, actions, suits or liabilities and any reasonable
counsel fees incurred in connection therewith), but only to the extent
that such claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, reasonable counsel fees and other
expenses result from, arise out of or are based upon:
(i) any alleged untrue statement of a material fact contained in
the Registration Statement or Prospectus or any alleged omission
of a material fact required to be stated or necessary to make the
statements therein not misleading, if such statement or omission
was made in reliance upon, and in conformity with, information
furnished to the Trust in writing in connection with the
preparation of the Registration Statement or Prospectus by or on
behalf of the Distributor; or
(ii) any act of, or omission by, Distributor or its sales
representatives that does not conform to the standard of care set
forth in Section 7 of this Agreement ("Trust Claims").
(d) The Distributor may assume the defense of any suit brought to
enforce any Trust Claim and may retain counsel of good standing chosen
by the Distributor and approved by the Trust, which approval shall not
be withheld unreasonably. The Distributor shall advise the Trust that
it will assume the defense of the suit and retain counsel within ten
(10) days of receipt of the notice of the claim. If the Distributor
assumes the defense of any such suit and retains counsel, the
defendants shall bear the fees and expenses of any additional counsel
that they retain. If the Distributor does not assume the defense of any
such suit, or if Trust does not approve of counsel chosen by the
Distributor or has been advised that it may have available defenses or
claims that are not available to or conflict with those available to
the Distributor, the Distributor will reimburse any Trust Indemnitee
named as defendant in such suit for the reasonable fees and expenses of
<PAGE>
any counsel that person retains. A Trust Indemnitee shall not settle or
confess any claim without the prior written consent of the Distributor,
which consent shall not be unreasonably withheld or delayed.
(e) The Trust's and the Distributor's obligations to provide
indemnification under this Section is conditioned upon the Trust or the
Distributor receiving notice of any action brought against a
Distributor Indemnitee or Trust Indemnitee, respectively, by the person
against whom such action is brought within twenty (20) days after the
summons or other first legal process is served. Such notice shall refer
to the person or persons against whom the action is brought. The
failure to provide such notice shall not relieve the party entitled to
such notice of any liability that it may have to any Distributor
Indemnitee or Trust Indemnitee except to the extent that the ability of
the party entitled to such notice to defend such action has been
materially adversely affected by the failure to provide notice.
(f) The provisions of this Section and the parties' representations and
warranties in this Agreement shall remain operative and in full force
and effect regardless of any investigation made by or on behalf of any
Distributor Indemnitee or Trust Indemnitee and shall survive the sale
and redemption of any Shares made pursuant to subscriptions obtained by
the Distributor. The indemnification provisions of this Section will
inure exclusively to the benefit of each person that may be a
Distributor Indemnitee or Trust Indemnitee at any time and their
respective successors and assigns (it being intended that such persons
be deemed to be third party beneficiaries under this Agreement).
(g) Each party agrees promptly to notify the other party of the
commencement of any litigation or proceeding of which it becomes aware
arising out of or in any way connected with the issuance or sale of
Shares.
(h) Nothing contained herein shall require the Trust to take any action
contrary to any provision of its Organic Documents or any applicable
statute or regulation or shall require the Distributor to take any
action contrary to any provision of its Articles of Incorporation or
Bylaws or any applicable statute or regulation; provided, however, that
neither the Trust nor the Distributor may amend their Organic Documents
or Articles of Incorporation and Bylaws, respectively, in any manner
that would result in a violation of a representation or warranty made
in this Agreement.
(i) Nothing contained in this section shall be construed to protect the
Distributor against any liability to the Trust or its security holders
to which the Distributor would otherwise be subject by reason of its
failure to satisfy the standard of care set forth in Section 7 of this
Agreement.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Forum Investment Advisors, LLC
The descriptions of Forum Investment Advisors, LLC under the caption
"Management-Adviser" in the Prospectuses and Statement of Additional
Information relating to Government Bond Fund, Corporate Bond Fund,
Value Equity Fund and Growth Equity Fund, constituting certain of Parts
A and B, respectively, of the Registration Statement are incorporated
by reference herein.
The following are the members of Forum Investment Advisors, LLC, Two
Portland Square, Portland, Maine 04101, including their business
connections, which are of a substantial nature.
Forum Holdings Corp. I., Member.
Forum Trust, LLC, Member.
<PAGE>
Both Forum Holdings Corp. I. and Forum Trust are controlled indirectly
by John Y. Keffer, President of Forum Trust and Forum Financial Group,
LLC. Mr. Keffer is also a director and/or officer of various
registered investment companies for which the various Forum Financial
Group's operating subsidiaries provide services.
<TABLE>
<S> <C> <C>
------------------------------------ ----------------------------------- -----------------------------------
Name Title Business Connection
------------------------------------ ----------------------------------- -----------------------------------
----------------------------------- ------------------------------------ -----------------------------------
Sara M. Morris Treasurer Forum Investment Advisors, LLC.
------------------------------------ -----------------------------------
Chief Financial Officer Forum Financial Group, LLC.
------------------------------------ -----------------------------------
------------------------------------ -----------------------------------
Officer Other Forum affiliated companies
----------------------------------- ------------------------------------ -----------------------------------
----------------------------------- ------------------------------------ -----------------------------------
David I. Goldstein Secretary Forum Investment Advisors, LLC.
------------------------------------ -----------------------------------
General Counsel Forum Financial Group, LLC.
------------------------------------ -----------------------------------
------------------------------------ -----------------------------------
Officer Other Forum affiliated companies
----------------------------------- ------------------------------------ -----------------------------------
----------------------------------- ------------------------------------ -----------------------------------
Mark D. Kaplan Director Forum Investment Advisors, LLC.
----------------------------------- ------------------------------------ -----------------------------------
</TABLE>
(b) Memorial Investment Advisors, Inc.
The descriptions of Memorial Investment Advisors, Inc. under the
caption "Management-Adviser" in the Prospectuses and Statement of
Additional Information relating to Equity Income Fund, International
Equity Fund and Government Money Market Fund, constituting certain
of Parts A and B, respectively, of the Registration Statement are
incorporated by reference herein.
The following are the directors and officers of Memorial Investment
Advisors, Inc., 5847 San Felipe, Suite 4545 Houston, TX 77057,
including any business connections of a substantial nature, which they
have had in the past two (2) years. Unless otherwise indicated, the
address of each company listed is 5847 San Felipe, Suite 4545 Houston,
TX 77057.
<TABLE>
<S> <C> <C>
------------------------------------ ----------------------------------- -----------------------------------
Name Title Business Connection
------------------------------------ ----------------------------------- -----------------------------------
------------------------------------ ----------------------------------- -----------------------------------
Christopher W. Hamm President Memorial Investment Advisors,
Inc.,
----------------------------------- -----------------------------------
President CapRock Financial Group
----------------------------------- -----------------------------------
President CapRock Management Corp.
----------------------------------- -----------------------------------
President Memorial Group, Inc.
----------------------------------- -----------------------------------
President Service Financial Group, Inc.
----------------------------------- -----------------------------------
Director Cypress Mortgage Corp., Austin,
Texas
----------------------------------- -----------------------------------
Executive Director CIBC Oppenheimer Corp.
1600 Smith, Suite 3100
Houston, Texas 77002
Prior to 9/98
------------------------------------ ----------------------------------- -----------------------------------
<PAGE>
------------------------------------ ----------------------------------- -----------------------------------
James L. Sullivan Vice President and Chief Memorial Investment Advisors,
Financial Officer Inc.,
----------------------------------- -----------------------------------
Vice President Memorial Group, Inc.
----------------------------------- -----------------------------------
Vice President Service Financial Group, Inc.
----------------------------------- -----------------------------------
Executive Director CIBC Oppenheimer Corp.
1600 Smith, Suite 3100
Houston, Texas 77002
Prior to 10/98
------------------------------------ ----------------------------------- -----------------------------------
------------------------------------ ----------------------------------- -----------------------------------
Larry O. Knowles Vice President and Chief Memorial Investment Advisors,
Financial Officer Inc.,
----------------------------------- -----------------------------------
Vice President Memorial Group, Inc.
----------------------------------- -----------------------------------
Vice President Service Financial Group, Inc.
----------------------------------- -----------------------------------
Private Consultant Self Employed
Prior to 9/98
------------------------------------ ----------------------------------- -----------------------------------
</TABLE>
(c) TCW Funds Management, Inc.
The descriptions of TCW Funds Management, Inc. ("TCW") under the
caption "Management-Adviser" in the Prospectuses and Statement of
Additional Information relating to Equity Income Fund, constituting
certain of Parts A and B, respectively, of the Registration Statement
are incorporated by reference herein.
The following are the directors and officers of TCW, 865 South Figueroa
Street, Suite 1800, Los Angeles, California 90017, including any
business connections of a substantial nature, which they have had in
the past two (2) years. Unless otherwise indicated, the address of each
company listed is 865 South Figueroa Street, Suite 1800, Los Angeles,
California 90017.
<TABLE>
<S> <C> <C>
------------------------------------ ----------------------------------- -----------------------------------
Name Title Business Connection
------------------------------------ ----------------------------------- -----------------------------------
------------------------------------ ----------------------------------- -----------------------------------
Alvin R. Albe President and Director TCW
----------------------------------- -----------------------------------
Executive Vice President and TCW Asset Management Company
Director
----------------------------------- -----------------------------------
Executive Vice President and Trust Company of the West
Director
----------------------------------- -----------------------------------
Executive Vice President The TCW Group, Inc.
----------------------------------- -----------------------------------
President and Director TCW Galileo Funds, Inc.
------------------------------------ ----------------------------------- -----------------------------------
<PAGE>
------------------------------------ ----------------------------------- -----------------------------------
Thomas E. Larkin, Jr. Vice Chairman TCW
----------------------------------- -----------------------------------
Vice Chairman TCW Asset Management Company
----------------------------------- -----------------------------------
President and Director Trust Company of the West
----------------------------------- -----------------------------------
Executive Vice President, Group The TCW Group, Inc.
Managing Director and Director
----------------------------------- -----------------------------------
Sr. Vice President TCW Convertible Funds, Inc.
----------------------------------- -----------------------------------
Director TCW Galileo Funds, Inc.
------------------------------------ ----------------------------------- -----------------------------------
------------------------------------ ----------------------------------- -----------------------------------
Marc I. Stern Chairman TCW
----------------------------------- -----------------------------------
Vice Chairman TCW Asset Management Company
----------------------------------- -----------------------------------
Director Trust Company of the West
----------------------------------- -----------------------------------
President and Director The TCW Group, Inc.
----------------------------------- -----------------------------------
Chairman Apex Mortgage Capital, Inc.
----------------------------------- -----------------------------------
Chairman TCW Galileo Funds, Inc.
----------------------------------- -----------------------------------
Director Qualcomm, Inc.
------------------------------------ ----------------------------------- -----------------------------------
</TABLE>
(d) The Glenmede Trust Company
The descriptions of The Glenmede Trust Company ("Glenmede") under the
caption "Management-Adviser" in the Prospectuses and Statement of
Additional Information relating to International Equity Fund,
constituting certain of Parts A and B, respectively, of the
Registration Statement are incorporated by reference herein.
The following are the directors and officers of Glenmede, 16 Chambers
Street, Princeton, New Jersey 08542-3708, including any business
connections of a substantial nature, which they have had in the past
two (2) years. Unless otherwise indicated, the address of each company
listed is 16 Chambers Street, Princeton, New Jersey 08542-3708.
<TABLE>
<S> <C> <C>
------------------------------------ ----------------------------------- -----------------------------------
Name Title Business Connection
------------------------------------ ----------------------------------- -----------------------------------
------------------------------------ ----------------------------------- -----------------------------------
James L. Kermes President and Chief Executive Glenmede
Officer
----------------------------------- -----------------------------------
Director The Glenmede Trust Company of New
Jersey
----------------------------------- -----------------------------------
Board Member Rittenhouse Square Indemnity Ltd.
Windsor Place - 3rd Fl.
18 Queen Street
Hamilton HM JX
Bermuda
------------------------------------ ----------------------------------- -----------------------------------
<PAGE>
------------------------------------ ----------------------------------- -----------------------------------
A. E. Piscopo Executive Vice President and Glenmede
Chief Operating Officer
----------------------------------- -----------------------------------
Director The Glenmede Trust Company of New
Jersey
------------------------------------ ----------------------------------- -----------------------------------
------------------------------------ ----------------------------------- -----------------------------------
James R. Belanger Vice President and Corporate Glenmede
Counsel
------------------------------------ ----------------------------------- -----------------------------------
</TABLE>
(e) PPM America, Inc.
The descriptions of PPM America, Inc. ("PPM") under the caption
"Management-Adviser" in the Prospectuses and Statement of Additional
Information relating to Equity Income Fund, constituting certain of
Parts A and B, respectively, of the Registration Statement are
incorporated by reference herein.
The following are the directors and officers of PPM, 225 West Wacker
Drive, Suite 1200, Chicago, Illinois 60606, including any business
connections of a substantial nature, which they have had in the past
two (2) years. Unless otherwise indicated, the address of each company
listed is 225 West Wacker Drive, Suite 1200, Chicago, Illinois 60606
<TABLE>
<S> <C> <C>
------------------------------------ ----------------------------------- -----------------------------------
Name Title Business Connection
------------------------------------ ----------------------------------- -----------------------------------
------------------------------------ ----------------------------------- -----------------------------------
Russell William Swanson President and Director PPM
------------------------------------ ----------------------------------- -----------------------------------
------------------------------------ ----------------------------------- -----------------------------------
Mark Bernard Mandich Executive Vice President, PPM
Secretary, Chief Compliance
Officer and Director
------------------------------------ ----------------------------------- -----------------------------------
------------------------------------ ----------------------------------- -----------------------------------
Fred John Stark III Executive Vice President, PPM
Secretary, Counsel and Director
------------------------------------ ----------------------------------- -----------------------------------
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Forum Fund Services, LLC, Registrant's underwriter, or its affiliate,
Forum Financial Services, Inc., serve as underwriter for the following
investment companies registered under the Investment Company Act of
1940. As amended:
The CRM Funds Monarch Funds
The Cutler Trust Norwest Advantage Funds
Forum Funds Norwest Select Funds
Sound Shore Fund, Inc.
(b) The following officer of Forum Fund Services, LLC, Registrant's
underwriter, holds the following position with registrant. Her business
address is Two Portland Square, Portland, Maine 04101.
<TABLE>
<S> <C> <C>
Name Position with Underwriter Position with Registrant
---- ------------------------- ------------------------
Sara M. Morris Treasurer Treasurer
</TABLE>
<PAGE>
(c) Not Applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The majority of the accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules
thereunder are maintained at the offices of Forum Administrative Services, LLC
and Forum Shareholder Services, LLC, Two Portland Square, Portland, Maine 04101.
The records required to be maintained under Rule 31a-1(b)(1) with respect to
journals of receipts and deliveries of securities and receipts and disbursements
of cash are maintained at the offices of the Registrant's custodian, Investors
Bank & Trust Company, 200 Clarendon Street, Boston, Massachusetts 02116. The
records required to be maintained under Rule 31a-1(b)(5), (6) and (9) are
maintained at the offices of the Registrant's adviser or subadviser, as listed
in Item 28 hereof.
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS
(i) Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six
months from the latter of the effective date of Registrant's Securities
Act of 1933 Registration Statement relating to the prospectuses
offering those shares or the commencement of public shares of the
respective shares; and,
(ii) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to
shareholders relating to the portfolio or class thereof, to which the
prospectus relates upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all of the requirements for effectiveness of this registration statement
under rule 485(b) under the Securities Act of 1933, as amended, and has duly
caused this post-effective amendment number 6 to Registrant's registration
statement to be signed on its behalf by the undersigned, duly authorized in the
City of Portland, State of Maine on August 17, 1999.
MEMORIAL FUNDS
Christopher W. Hamm, President
By: /s/ David I. Goldstein
---------------------------------
David I. Goldstein, Attorney-in-Fact*
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below by the following persons on August
17, 1999.
(a) Principal Executive Officer
Christopher W. Hamm
By: /s/ David I. Goldstein
----------------------------------
David I. Goldstein, Attorney-in-Fact*
(b) Principal Financial Officer
/s/ Sara M. Morris
-------------------------------------
Sara M. Morris, Treasurer
(c) A majority of the Trustees
Jay Brammer, Trustee
J.B. Goodwin, Trustee
Christopher W. Hamm, Trustee
John Y. Keffer, Trustee
Robert Stillwell, Trustee
By: /s/ David I. Goldstein
----------------------------------
David I. Goldstein, Attorney-in-Fact*
* Pursuant to powers of attorney filed as Other Exhibits to this
Registration Statement.
<PAGE>
Index to Exhibits
(d)(2) Investment Advisory Agreement between Registrant and Memorial Investment
Advisors, Inc., dated as of August 10, 1999.
(d)(3) Form of Investment Subadvisory Agreement between registrant, Memorial
Investment Advisors, Inc. and TCW Funds Management, Inc., dated as of
August __, 1999.
(d)(4) Investment Subadvisory Agreement between registrant, Memorial Investment
Advisors, Inc. and The Glenmede Trust Company, dated as of August 10,
1999.
(d)(5) Investment Subadvisory Agreement between registrant, Memorial Investment
Advisors, Inc. and PPM America, Inc., dated as of August 10, 1999.
(g)(3) Custodian Agreement between Registrant and The Chase Manhattan Bank
dated August 13, 1999.
Exhibit (d)(2)
MEMORIAL FUNDS
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 10th day of August, 1999, by and between
Memorial Funds, a Delaware business trust, its principal office and place of
business at Two Portland Square, Portland, Maine 04101 (the "Trust"), and
Memorial Investment Advisors, Inc., a Delaware corporation, with its principal
office and place of business at 5847 San Felipe, Suite 4545 Houston, TX 77057
("Adviser").
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, management investment company
and may issue its shares of beneficial interest, no par value (the "Shares"), in
separate series; and
WHEREAS, the Trust desires that the Adviser perform investment advisory
services for each series of the Trust listed in Appendix A hereto (each, a
"Fund" and collectively, the "Funds"), and the Adviser is willing to provide
those services on the terms and conditions set forth in this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Trust and the Adviser hereby agree as follows:
SECTION 1. APPOINTMENT; DELIVERY OF DOCUMENTS
(a) The Trust hereby employs Adviser, subject to the direction and
control of the Board, to manage the investment and reinvestment of the assets in
each Fund and, without limiting the generality of the foregoing, to provide
other services as specified herein. The Adviser accepts this employment and
agrees to render its services for the compensation set forth herein.
(b) In connection therewith, the Trust has delivered to the Adviser
copies of (i) the Trust's Trust Instrument (ii) the Trust's Registration
Statement and all amendments thereto filed with the U.S. Securities and Exchange
Commission ("SEC") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), or the 1940 Act (the "Registration Statement"), (iii) the
Trust's current Prospectuses and Statements of Additional Information of each
Fund (collectively, as currently in effect and as amended or supplemented, the
"Prospectus"), and (iv) all procedures adopted by the Trust with respect to any
Fund (i.e., repurchase agreement procedures), and shall promptly furnish the
Adviser with all amendments of or supplements to the foregoing. The Trust shall
deliver to the Adviser (x) a certified copy of the resolution of the Board of
Trustees of the Trust (the "Board") appointing the Adviser and authorizing the
execution and delivery of this Agreement, (y) a copy of all proxy statements and
related materials relating to any Fund, and (z) any other documents, materials
or information that the Adviser shall reasonably request to enable it to perform
its duties pursuant to this Agreement.
(c) The Adviser has delivered to the Trust (i) a copy of its Form ADV
as most recently filed with the SEC and (ii) a copy of its code of ethics
complying with the requirements of Rule 17j-1 under the 1940 Act (the "Code").
The Adviser shall promptly furnish the Trust with all amendments of or
supplements to the foregoing at least annually.
SECTION 2. DUTIES OF THE TRUST
In order for the Adviser to perform the services required by this
Agreement, the Trust (i) shall cause all service providers to the Trust to
furnish information to the Adviser, and assist the Adviser as may be required
and (ii) shall ensure that the Adviser has reasonable access to all records and
documents maintained by the Trust or any service provider to the Trust.
<PAGE>
SECTION 3. DUTIES OF THE ADVISER
(a) The Adviser shall make all decisions with respect to the allocation
of the Funds' investments in various securities or other assets, in investment
styles and, if applicable, in other investment companies or pooled vehicles in
which a Fund may invest. The Adviser will make decisions with respect to all
purchases and sales of securities and other investment assets in each Fund. To
carry out such decisions, the Adviser is hereby authorized, as agent and
attorney-in-fact for the Trust, for the account of, at the risk of and in the
name of the Trust, to place orders and issue instructions with respect to those
transactions of the Funds. In all purchases, sales and other transactions in
securities and other investments for the Funds, the Adviser is authorized to
exercise full discretion and act for the Trust in the same manner and with the
same force and effect as the Trust might or could do with respect to such
purchases, sales or other transactions, as well as with respect to all other
things necessary or incidental to the furtherance or conduct of such purchases,
sales or other transactions.
Consistent with Section 28(e) of the Securities Exchange Act of 1934,
as amended, the Adviser may allocate brokerage on behalf of the Funds to
broker-dealers who provide research services. The Adviser may aggregate sales
and purchase orders of the assets of the Funds with similar orders being made
simultaneously for other accounts advised by the Adviser or its affiliates.
Whenever the Adviser simultaneously places orders to purchase or sell the same
asset on behalf of a Fund and one or more other accounts advised by the Adviser,
the orders will be allocated as to price and amount among all such accounts in a
manner believed to be equitable over time to each account.
(b) The Adviser will report to the Board at each meeting thereof as
requested by the Board all material changes in each Fund since the prior report,
and will also keep the Board informed of important developments affecting the
Trust, the Funds and the Adviser, and on its own initiative, will furnish the
Board from time to time with such information as the Adviser may believe
appropriate for this purpose, whether concerning the individual companies whose
securities are included in the Funds' holdings, the industries in which they
engage, the economic, social or political conditions prevailing in each country
in which the Funds maintain investments, or otherwise. The Adviser will also
furnish the Board with such statistical and analytical information with respect
to investments of the Funds as the Adviser may believe appropriate or as the
Board reasonably may request. In making purchases and sales of securities and
other investment assets for the Funds, the Adviser will bear in mind the
policies set from time to time by the Board as well as the limitations imposed
by the Trust Instrument, the limitations in the 1940 Act, the Securities Act,
the Internal Revenue Code of 1986, as amended, and other applicable laws and the
investment objectives, policies and restrictions of the Funds.
(c) The Adviser will from time to time employ or contract or associate with
such persons as the Adviser believes to be particularly fitted to assist in the
execution of the Adviser's duties hereunder, the cost of performance of such
duties to be borne and paid by the Adviser. No obligation may be incurred on the
Trust's behalf in any such respect. If Adviser delegates all or a portion of its
duties under this Agreement with respect to a Fund to one or more sub-advisers
pursuant to Section 9 hereof, Adviser shall report to the Board at each
regularly scheduled meeting thereof, or as otherwise requested by the Board,
information regarding the investments made on behalf of the Fund by the
sub-adviser or sub-advisers, the performance of the Fund, and the fees paid to
the sub-adviser or sub-advisers or such other information as the Adviser may
believe appropriate or as the Board reasonably may request.
(d) The Adviser will report to the Board all material matters related
to the Adviser. On an annual basis, the Adviser shall report on its compliance
with its Code to the Board and upon the written request of the Trust, the
Adviser shall permit the Trust, or its representatives to examine the reports
required to be made to the Adviser under the Code. The Adviser will notify the
Trust of any change of control of the Adviser and any changes in the key
personnel who are either the portfolio manager(s) of the Fund or senior
management of the Adviser, in each case prior to or promptly after such change.
<PAGE>
(e) The Adviser will maintain records relating to its portfolio
transactions and placing and allocation of brokerage orders as are required to
be maintained by the Trust under the 1940 Act. The Adviser shall prepare and
maintain, or cause to be prepared and maintained, in such form, for such periods
and in such locations as may be required by applicable law, all documents and
records relating to the services provided by the Adviser pursuant to this
Agreement required to be prepared and maintained by the Adviser or the Trust
pursuant to applicable law. To the extent required by law, the books and records
pertaining to the Trust which are in possession of the Adviser shall be the
property of the Trust. The Trust, or its representatives, shall have access to
such books and records at all times during the Adviser's normal business hours.
Upon the reasonable request of the Trust, copies of any such books and records
shall be provided promptly by the Adviser to the Trust or its representatives.
(f) The Adviser will cooperate with each Fund's independent public
accountants and shall take reasonable action to make all necessary information
available to the accountants for the performance of the accountants' duties.
(g) The Adviser will provide the Funds' custodian and fund accountant
on each business day with such information relating to all transactions
concerning the Funds' assets as the custodian and fund accountant may reasonably
require. In accordance with procedures adopted by the Board, the Adviser is
responsible for assisting in the fair valuation of all Fund assets and will use
its reasonable efforts to arrange for the provision of prices from parties who
are not affiliated persons of the Adviser for each asset for which the Funds'
fund accountant does not obtain prices in the ordinary course of business.
(h) The Adviser shall authorize and permit any of its directors,
officers and employees who may be elected as Trustees or officers of the Trust
to serve in the capacities in which they are elected.
(i) Except for the Adviser's asset allocation duties specified in the
first sentence of Section 3(a) hereof, unless otherwise agreed to by the Adviser
and the Trust, the Adviser shall have no duties or obligations pursuant to this
Agreement with respect to a Fund during any period in which the Fund invests all
or substantially all of its investment assets in a registered, open-end
management investment company, or separate series thereof, in accordance with
Section 12(d)(1)(E) under the 1940 Act.
(j) The Adviser shall oversee the performance of administrative and
professional services rendered to the Trust by others, including its custodian,
transfer agent and dividend disbursing agent as well as legal, auditing,
shareholder servicing and other services performed for the Funds.
SECTION 4. COMPENSATION; EXPENSES
(a) In consideration of the foregoing, the Trust shall pay the Adviser,
with respect to each Fund, a fee at an annual rate as listed in Appendix A
hereto. Such fees shall be accrued by the Trust daily and shall be payable
monthly in arrears on the first day of each calendar month for services
performed hereunder during the prior calendar month. If fees begin to accrue in
the middle of a month or if this Agreement terminates before the end of any
month, all fees for the period from that date to the end of that month or from
the beginning of that month to the date of termination, as the case may be,
shall be prorated according to the proportion that the period bears to the full
month in which the effectiveness or termination occurs. Upon the termination of
this Agreement with respect to a Fund, the Trust shall pay to the Adviser such
compensation as shall be payable prior to the effective date of termination.
<PAGE>
(b) The Adviser may agree to waive all or part of its fees by separate
agreement.
(c) During any period in which a Fund invests all (or substantially
all) of its investment assets in a registered, open-end, management investment
company, or separate series thereof, in accordance with Section 12(d)(1)(E)
under the 1940 Act, any fee payable hereunder with respect to the Fund shall be
reduced by an amount equal to the investment adviser's fee paid by the
management investment company or series with respect to the Fund's assets so
invested.
(d) The Trust shall be responsible for and assumes the obligation for
payment of all of its expenses, including: (a) the fee payable under this
Agreement; (b) the fees payable to each administrator under an agreement between
the administrator the Trust; (c) expenses of issue, repurchase and redemption of
Shares; (d) interest charges, taxes and brokerage fees and commissions; (e)
premiums of insurance for the Trust, its trustees and officers and fidelity bond
premiums; (f) fees and expenses of third parties, including the Trust's
independent accountant, custodian, transfer agent, dividend disbursing agent and
fund accountant; (g) fees of pricing, interest, dividend, credit and other
reporting services; (h) costs of membership in trade associations; (i)
telecommunications expenses; (j) funds transmission expenses; (k) auditing,
legal and compliance expenses; (l) costs of forming the Trust and maintaining
its existence; (m) costs of preparing, filing and printing the Trust's
Prospectuses, subscription application forms and shareholder reports and other
communications and delivering them to existing shareholders, whether of record
or beneficial; (n) expenses of meetings of shareholders and proxy solicitations
therefor; (o) costs of maintaining books of original entry for portfolio and
fund accounting and other required books and accounts, of calculating the net
asset value of Shares and of preparing tax returns; (p) costs of reproduction,
stationery, supplies and postage; (q) fees and expenses of the Trust's trustees
and officers; (r) the costs of personnel (who may be employees of the Adviser,
an administrator or their respective affiliated persons) performing services for
the Trust; (s) costs of Board, Board committee, shareholder and other corporate
meetings; (t) SEC registration fees and related expenses; (u) state, territory
or foreign securities laws registration fees and related expenses; and (v) all
fees and expenses paid by the Trust in accordance with any distribution or
service plan or agreement related to similar manners.
SECTION 5. STANDARD OF CARE
(a) The Trust shall expect of the Adviser, and the Adviser will give
the Trust the benefit of, the Adviser's best judgment and efforts in rendering
its services to the Trust. The Adviser shall not be liable hereunder for any
mistake of judgment or in any event whatsoever, except for lack of good faith,
provided that nothing herein shall be deemed to protect, or purport to protect,
the Adviser against any liability to the Trust or to the Trust's security
holders to which the Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of the Adviser's
duties hereunder, or by reason of the Adviser's reckless disregard of its
obligations and duties hereunder.
(b) The Adviser shall not be liable to the Trust for any action taken
or failure to act in good faith reliance upon: (i) information, instructions or
requests, whether oral or written, with respect to a Fund that the Adviser
reasonably believes were made by a duly authorized officer of the Trust, (ii)
the advice of counsel to the Trust, and (iii) any written instruction or
certified copy of any resolution of the Board.
(c) The Adviser shall not be responsible or liable for any failure or
delay in performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable control
including, without limitation, acts of civil or military authority, national
emergencies, labor difficulties (other than those related to the Adviser's
employees), fire, mechanical breakdowns, flood or catastrophe, acts of God,
insurrection, war, riots or failure of the mails, transportation, communication
or power supply.
SECTION 6. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to a Fund
immediately upon approval by a majority of the outstanding voting securities of
that Fund.
<PAGE>
(b) This Agreement shall remain in effect with respect to a Fund for a
period of two years from the date of its effectiveness and shall continue in
effect for successive annual periods with respect to the Fund; provided that
such continuance is specifically approved at least annually (i) by the Board or
by the vote of a majority of the outstanding voting securities of the Fund, and,
in either case, (ii) by a majority of the Trust's trustees who are not parties
to this Agreement or interested persons of any such party (other than as
trustees of the Trust); provided further, however, that if the continuation of
this Agreement is not approved as to a Fund, the Adviser may continue to render
to that Fund the services described herein in the manner and to the extent
permitted by the 1940 Act and the rules and regulations thereunder.
(c) This Agreement may be terminated with respect to a Fund at any
time, without the payment of any penalty, (i) by the Board or by a vote of a
majority of the outstanding voting securities of the Fund on 60 days' written
notice to the Adviser or (ii) by the Adviser on 60 days' written notice to the
Trust. This Agreement shall terminate immediately upon its assignment.
SECTION 7. ACTIVITIES OF THE ADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Adviser's right, or the
right of any of the Adviser's directors, officers or employees to engage in any
other business or to devote time and attention to the management or other
aspects of any other business, whether of a similar or dissimilar nature, or to
render services of any kind to any other corporation, trust, firm, individual or
association.
SECTION 8. REPRESENTATIONS OF ADVISER.
The Adviser represents and warrants that (i) it is either registered as
an investment adviser under the Investment Advisers Act of 1940, as amended
("Advisers Act") (and will continue to be so registered for so long as this
Agreement remains in effect) or exempt from registration under the Advisers Act,
(ii) is not prohibited by the 1940 Act or the Advisers Act from performing the
services contemplated by this Agreement, (iii) has met, and will seek to
continue to meet for so long as this Agreement remains in effect, any other
applicable federal or state requirements, or the applicable requirements of any
self-regulatory agency, necessary to be met in order to perform the services
contemplated by this Agreement, and (iv) will promptly notify the Trust of the
occurrence of any event that would disqualify the Adviser from serving as an
investment adviser of an investment company pursuant to Section 9(a) of the 1940
Act or otherwise.
SECTION 9. SUBADVISERS
At its own expense, the Adviser may carry out any of its obligations
under this Agreement by employing, subject to the direction and control of the
Board, one or more persons who are registered as investment advisers pursuant to
the Advisers Act or who are exempt from registration thereunder ("Subadvisers").
Each Subadviser's employment will be evidenced by a separate written agreement
approved by the Board and, if required, by the shareholders of the applicable
Fund. The Adviser shall not be liable hereunder for any act or omission of any
Subadviser, except to exercise good faith in the employment of the Subadviser
and except with respect to matters as to which the Adviser assumes
responsibility in writing.
SECTION 10. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the shareholders of each Fund shall not
be liable for any obligations of the Trust or of the Funds under this Agreement,
and the Adviser agrees that, in asserting any rights or claims under this
Agreement, it shall look only to the assets and property of the Trust or the
Fund to which the Adviser's rights or claims relate in settlement of such rights
or claims, and not to the Trustees of the Trust or the shareholders of the
Funds.
<PAGE>
SECTION 11. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto and, if required by the 1940 Act, by a vote of a majority of the
outstanding voting securities of any Fund thereby affected.
(b) No amendment to this Agreement or the termination of this Agreement
with respect to a Fund shall effect this Agreement as it pertains to any other
Fund, nor shall any such amendment require the vote of the shareholders of any
other Fund.
(c) Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement.
(d) This Agreement shall be governed by, and the provisions of this
Agreement shall be construed and interpreted under and in accordance with, the
laws of the State of Delaware.
(e) This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof, whether oral or written.
(f) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
(g) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(h) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(i) Notices, requests, instructions and communications received by the
parties at their respective principal places of business, or at such other
address as a party may have designated in writing, shall be deemed to have been
properly given.
(j) Notwithstanding any other provision of this Agreement, the parties
agree that the assets and liabilities of each Fund are separate and distinct
from the assets and liabilities of any other series of the Trust and that no
Fund shall be liable or shall be charged for any debt, obligation or liability
of any other Fund or series, whether arising under this Agreement or otherwise.
(k) No affiliated person, employee, agent, director, officer or manager
of the Adviser shall be liable at law or in equity for the Adviser's obligations
under this Agreement.
(l) The terms "vote of a majority of the outstanding voting
securities", "interested person", "affiliated person," "control" and
"assignment" shall have the meanings ascribed thereto in the 1940 Act.
(m) Each of the undersigned warrants and represents that they have full
power and authority to sign this Agreement on behalf of the party indicated and
that their signature will bind the party indicated to the terms hereof and each
party hereto warrants and represents that this Agreement, when executed and
delivered, will constitute a legal, valid and binding obligation of the party,
enforceable against the party in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
MEMORIAL FUNDS
By:__/s/ Thomas G. Sheehan______
Thomas G. Sheehan
Vice President
MEMORIAL INVESTMENT ADVISORS, INC.
By:__/s/ Christopher W. Hamm____
Christopher W. Hamm
President
<PAGE>
MEMORIAL FUNDS
INVESTMENT ADVISORY AGREEMENT
Appendix A
FEE AS A % OF THE ANNUAL
FUNDS OF THE TRUST AVERAGE DAILY NET ASSETS OF THE FUND
Government Money Market Fund .18%
Equity Income Fund .62%
International Equity Fund .77%
Exhibit (d)(3)
MEMORIAL FUNDS
FORM OF
SUBADVISORY AGREEMENT
AGREEMENT made as of the ___ day of _________, 1999, by and among
Memorial Funds, a Delaware business trust, with its principal office and place
of business at Two Portland Square, Portland, Maine 04101, (the "Trust");
Memorial Investment Advisors, Inc., a Delaware corporation, with its principal
office and place of business at 5847 San Felipe, Suite 4545 Houston, Texas
77057, (the "Adviser") and TCW Funds Management, Inc., a California corporation,
with its principal office and place of business at 865 South Figueroa Street,
Ste. 1800, Los Angeles, California 90017 (the "Subadviser").
WHEREAS, Adviser has entered into an Investment Advisory Agreement
dated the __th day of ___________, 1999, ("Advisory Agreement") with the Trust;
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended, (the "1940 Act"), as an open-end, management investment
company and may issue its shares of beneficial interest, no par value (the
"Shares"), in separate series;
WHEREAS, pursuant to the Advisory Agreement, and subject to the
direction and control of the Board of Trustees of the Trust (the "Board"), the
Adviser acts as investment adviser for each series of the Trust listed on
Schedule A hereto (each, a "Fund" and, collectively, the "Funds");
WHEREAS, the Trust and Adviser desire to retain the Subadviser to
perform investment advisory services for the Fund and Subadviser is willing to
provide those services on the terms and conditions set forth in this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Adviser and the Subadviser hereby agree as
follows:
SECTION 1. APPOINTMENT; DELIVERY OF DOCUMENTS
(a) The Trust and the Adviser hereby employ Subadviser, subject to the
direction and control of the Board, to manage the investment and reinvestment of
the assets in each Fund and, without limiting the generality of the foregoing,
to provide other services as specified herein. The Subadviser accepts this
employment and agrees to render its services for the compensation set forth
herein.
(b) In connection therewith, the Trust has delivered to the Subadviser
copies of (i) the Trust's Trust Instrument, (ii) the Trust's Registration
Statement and all amendments thereto filed with the U.S. Securities and Exchange
Commission ("SEC") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), or the 1940 Act (the "Registration Statement"), (iii) the
Trust's current Prospectuses and Statements of Additional Information of each
Fund (collectively, as currently in effect and as amended or supplemented, the
"Prospectus"), and (iv) all procedures adopted by the Trust with respect to any
Fund (i.e., repurchase agreement procedures), and shall promptly furnish the
Adviser with all amendments of or supplements to the foregoing. The Trust shall
deliver to the Subadviser (x) a certified copy of the resolution of the Board
appointing the Subadviser and authorizing the execution and delivery of this
Agreement, (y) a copy of all proxy statements and related materials relating to
any Fund, and (z) any other documents, materials or information that the
Subadviser shall reasonably request to enable it to perform its duties pursuant
to this Agreement.
(c) The Subadviser has delivered to the Adviser and the Trust (i) a
copy of its Form ADV as most recently filed with the SEC and (ii) a copy of its
code of ethics complying with the requirements of Rule 17j-1 under the 1940 Act
<PAGE>
(the "Code"). The Subadviser shall promptly furnish the Adviser and Trust with
all amendments of or supplements to the foregoing at least annually.
SECTION 2. DUTIES OF THE TRUST AND ADVISER
(a) In order for the Subadviser to perform the services required by
this Agreement, the Trust and the Adviser (i) shall, cause all service providers
to the Trust to furnish information relating to any Fund to the Subadviser and
assist the Subadviser as may be required and (ii) shall ensure that the
Subadviser has reasonable access to all records and documents maintained by the
Trust, or any service provider to the Trust.
(b) In order for the Subadviser to perform the services required by
this Agreement, the Adviser shall deliver to the Subadviser all material it
provides to the Board in accordance with the Advisory Agreement.
SECTION 3. DUTIES OF THE SUBADVISER
(a) The Subadviser will make decisions with respect to all purchases
and sales of securities and other investment assets in each Fund to the extent
such authority is delegated by the Adviser. To carry out such decisions, the
Subadviser is hereby authorized, as agent and attorney-in-fact for the Trust,
for the account of, at the risk of and in the name of the Trust, to place orders
and issue instructions with respect to those transactions of the Funds. In all
purchases, sales and other transactions in securities and other investments for
the Funds, the Subadviser is authorized to exercise full discretion and act for
the Trust in the same manner and with the same force and effect as the Trust
might or could do with respect to such purchases, sales or other transactions,
as well as with respect to all other things necessary or incidental to the
furtherance or conduct of such purchases, sales or other transactions.
Consistent with Section 28(e) of the Securities Exchange Act of 1934,
as amended, the Subadviser may allocate brokerage on behalf of the Funds to
broker-dealers who provide research services. The Subadviser may aggregate sales
and purchase orders of the assets of the Funds with similar orders being made
simultaneously for other accounts advised by the Subadviser or its affiliates.
Whenever the Subadviser simultaneously places orders to purchase or sell the
same asset on behalf of a Fund and one or more other accounts advised by the
Subadviser, the orders will be allocated as to price and amount among all such
accounts in a manner believed to be equitable over time to each account.
(b) The Subadviser will report to the Board at each meeting thereof as
requested by the Adviser or the Board all material changes in each Fund since
the prior report, and will also keep the Board informed of important
developments affecting the Trust, the Funds and the Subadviser, and on its own
initiative, will furnish the Board from time to time with such information as
the Subadviser may believe appropriate for this purpose, whether concerning the
individual companies whose securities are included in the Funds' holdings, the
industries in which they engage, the economic, social or political conditions
prevailing in each country in which the Funds maintain investments, or
otherwise. The Subadviser will also furnish the Board with such statistical and
analytical information with respect to investments of the Funds as the
Subadviser may believe appropriate or as the Board reasonably may request. In
making purchases and sales of securities and other investment assets for the
Funds, the Subadviser will bear in mind the policies set from time to time by
the Board as well as the limitations imposed by the Trust Instrument and
Registration Statement, the limitations in the 1940 Act, the Securities Act, the
Internal Revenue Code of 1986, as amended, and other applicable laws and the
investment objectives, policies and restrictions of the Funds.
(c) The Subadviser will from time to time employ or associate with such
persons as the Subadviser believes to be particularly fitted to assist in the
execution of the Subadviser's duties hereunder, the cost of performance of such
duties to be borne and paid by the Subadviser. No obligation may be incurred on
the Trust's or Adviser's behalf in any such respect.
<PAGE>
(d) The Subadviser will report to the Board all material matters
related to the Subadviser. On an annual basis, the Subadviser shall report on
its compliance with its Code to the Adviser and to the Board and upon the
written request of the Adviser or the Trust, the Subadviser shall permit the
Adviser and the Trust, or their respective representatives to examine the
reports required to be made to the Subadviser under the Code. The Subadviser
will notify the Adviser and the Trust of any change of control of the Subadviser
and any changes in the key personnel who are either the portfolio manager(s) of
the Fund or senior management of the Subadviser, in each case prior to or
promptly after such change.
(e) The Subadviser will maintain records relating to its portfolio
transactions and placing and allocation of brokerage orders as are required to
be maintained by the Trust under the 1940 Act. The Subadviser shall prepare and
maintain, or cause to be prepared and maintained, in such form, for such periods
and in such locations as may be required by applicable law, all documents and
records relating to the services provided by the Subadviser pursuant to this
Agreement required to be prepared and maintained by the Subadviser or the Trust
pursuant to applicable law. To the extent required by law, the books and records
pertaining to the Trust which are in possession of the Subadviser shall be the
property of the Trust. The Adviser and the Trust, or their respective
representatives, shall have access to such books and records at all times during
the Subadviser's normal business hours. Upon the reasonable request of the
Adviser or the Trust, copies of any such books and records shall be provided
promptly by the Subadviser to the Adviser and the Trust, or their respective
representatives.
(f) The Subadviser will cooperate with each Fund's independent public
accountants and shall take reasonable action to make all necessary information
available to the accountants for the performance of the accountants' duties.
(g) The Subadviser will provide the Funds' custodian and fund
accountant on each business day with such information relating to all
transactions concerning the Funds' assets under the Subadviser's control as the
custodian and fund accountant may reasonably require. In accordance with
procedures adopted by the Board, the Subadviser is responsible for assisting in
the fair valuation of all Fund assets and will use its reasonable efforts to
arrange for the provision of prices from parties who are not affiliated persons
of the Subadviser for each asset for which the Funds' fund accountant does not
obtain prices in the ordinary course of business.
(h) The Subadviser shall authorize and permit any of its directors,
officers and employees who may be elected as Trustees or officers of the Trust
to serve in the capacities in which they are elected.
(i) Except as otherwise agreed to by the Trust, the Adviser and the
Subadviser, during any period in which a Fund invests all (or substantially all)
of its investment assets in a registered, open-end management investment
company, or separate series thereof, in accordance with Section 12(d)(1)(E)
under the 1940 Act, the Subadviser shall have no duties or obligations pursuant
to this Agreement with respect to the Fund.
SECTION 4. COMPENSATION; EXPENSES
(a) In consideration of the foregoing, the Adviser shall pay the
Subadviser, with respect to each Fund, a fee at an annual rate as listed in
Appendix A hereto. Such fees shall be accrued by the Adviser daily and shall be
payable monthly in arrears on the first day of each calendar month for services
performed hereunder during the prior calendar month. If fees begin to accrue in
the middle of a month or if this Agreement terminates before the end of any
month, all fees for the period from that date to the end of that month or from
the beginning of that month to the date of termination, as the case may be,
shall be prorated according to the proportion that the period bears to the full
month in which the effectiveness or termination occurs. Upon the termination of
this Agreement with respect to a Fund, the Adviser shall pay to the Subadviser
such compensation as shall be payable prior to the effective date of
termination.
<PAGE>
(b) The Subadviser may agree to waive all or part of its fees by
separate agreement.
(c) No fee shall be payable hereunder with respect to a Fund during any
period in which the Fund invests all (or substantially all) of its investment
assets in a registered, open-end, management investment company, or separate
series thereof, in accordance with Section 12(d)(1)(E) under the 1940 Act.
SECTION 5. STANDARD OF CARE
(a) The Trust and Adviser shall expect of the Subadviser, and the
Subadviser will give the Trust and Adviser the benefit of, the Subadviser's best
judgment and efforts in rendering its services hereunder. The Subadviser shall
not be liable to the Adviser or the Trust hereunder for any mistake of judgment
or in any event whatsoever, except for lack of good faith, provided that nothing
herein shall be deemed to protect, or purport to protect, the Subadviser against
any liability to the Adviser or the Trust to which the Subadviser would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Subadviser's duties hereunder, or by reason
of the Subadviser's reckless disregard of its obligations and duties hereunder.
(b) The Subadviser shall not be liable to the Adviser or the Trust for
any action taken or failure to act in good faith reliance upon: (i) information,
instructions or requests, whether oral or written, with respect to a Fund that
the Subadviser reasonably believes were made by a duly authorized officer of the
Adviser or the Trust, (ii) the advice of counsel to the Trust, and (iii) any
written instruction or certified copy of any resolution of the Board.
(c) The Subadviser shall not be responsible or liable for any failure
or delay in performance of its obligations under this Agreement arising out of
or caused, directly or indirectly, by circumstances beyond its reasonable
control including, without limitation, acts of civil or military authority,
national emergencies, labor difficulties (other than those related to the
Subadviser's employees), fire, mechanical breakdowns, flood or catastrophe, acts
of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
SECTION 6. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to a Fund
immediately upon the later of approval by a majority of the Trust's trustees who
are not parties to this Agreement or interested persons of any such party (other
than as trustees of the Trust) and, if required by applicable law, by a vote of
a majority of the outstanding voting securities of the Fund.
(b) This Agreement shall remain in effect with respect to a Fund for a
period of two years from the date of its effectiveness and shall continue in
effect for successive annual periods with respect to the Fund; provided that
such continuance is specifically approved at least annually (i) by the Board or
by the vote of a majority of the outstanding voting securities of the Fund, and,
in either case, (ii) by a majority of the Trust's trustees who are not parties
to this Agreement or interested persons of any such party (other than as
trustees of the Trust); provided further, however, that if the continuation of
this Agreement is not approved as to a Fund, the Subadviser may continue to
render to that Fund the services described herein in the manner and to the
extent permitted by the 1940 Act and the rules and regulations thereunder.
(c) This Agreement may be terminated with respect to a Fund at any
time, without the payment of any penalty, (i) by the Board, by a vote of a
majority of the outstanding voting securities of the Fund or by the Adviser on
60 days' written notice to the Subadviser or (ii) by the Subadviser on 60 days'
written notice to the Trust. This Agreement shall terminate immediately (x) upon
its assignment or (y) upon termination of the Advisory Agreement.
<PAGE>
SECTION 7. ACTIVITIES OF THE SUBADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Subadviser's right, or
the right of any of the Subadviser's directors, officers or employees to engage
in any other business or to devote time and attention to the management or other
aspects of any other business, whether of a similar or dissimilar nature, or to
render services of any kind to any other corporation, trust, firm, individual or
association.
SECTION 8. REPRESENTATIONS OF SUBADVISER.
The Subadviser represents and warrants that (i) it is either registered
as an investment adviser under the Investment Advisers Act of 1940, as amended
("Advisers Act") (and will continue to be so registered for so long as this
Agreement remains in effect) or exempt from registration under the Advisers Act,
(ii) is not prohibited by the 1940 Act or the Advisers Act from performing the
services contemplated by this Agreement, (iii) has met, and will seek to
continue to meet for so long as this Agreement remains in effect, any other
applicable federal or state requirements, or the applicable requirements of any
self-regulatory agency, necessary to be met in order to perform the services
contemplated by this Agreement, and (iv) will promptly notify the Adviser and
the Trust of the occurrence of any event that would disqualify the Subadviser
from serving as an investment adviser of an investment company pursuant to
Section 9(a) of the 1940 Act or otherwise.
SECTION 9. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the shareholders of each Fund shall not
be liable for any obligations of the Trust or of the Funds under this Agreement,
and the Subadviser agrees that, in asserting any rights or claims under this
Agreement, it shall look only to the assets and property of the Trust or the
Fund to which the Subadviser's rights or claims relate in settlement of such
rights or claims, and not to the Trustees of the Trust or the shareholders of
the Funds.
SECTION 10. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto and approved by the Trust in the manner set forth in Section 6(b)
hereof.
(b) No amendment to this Agreement or the termination of this Agreement
with respect to a Fund shall effect this Agreement as it pertains to any other
Fund, nor shall any such amendment require the vote of the shareholders of any
other Fund.
(c) Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement.
(d) This Agreement shall be governed by, and the provisions of this
Agreement shall be construed and interpreted under and in accordance with, the
laws of the State of Delaware.
(e) This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof, whether oral or written.
(f) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
(g) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
<PAGE>
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(h) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(i) Notices, requests, instructions and communications received by the
parties at their respective principal places of business, or at such other
address as a party may have designated in writing, shall be deemed to have been
properly given.
(j) Notwithstanding any other provision of this Agreement, the parties
agree that the assets and liabilities of each Fund are separate and distinct
from the assets and liabilities of any other series of the Trust and that no
Fund or other series of the Trust shall be liable or shall be charged for any
debt, obligation or liability of any other Fund or series, whether arising under
this Agreement or otherwise.
(k) No affiliated person, employee, agent, director, officer or manager
of the Subadviser shall be liable at law or in equity for the Subadviser's
obligations under this Agreement.
(l) The terms "vote of a majority of the outstanding voting
securities", "interested person", "affiliated person," "control" and
"assignment" shall have the meanings ascribed thereto in the 1940 Act.
(m) Each of the undersigned warrants and represents that they have full
power and authority to sign this Agreement on behalf of the party indicated and
that their signature will bind the party indicated to the terms hereof and each
party hereto warrants and represents that this Agreement, when executed and
delivered, will constitute a legal, valid and binding obligation of the party,
enforceable against the party in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
MEMORIAL FUNDS
--------------------------
Thomas G. Sheehan
Vice President
MEMORIAL INVESTMENT ADVISORS, INC.
---------------------------
Christopher W. Hamm
President
TCW FUNDS MANAGEMENT, INC.
---------------------------
[Name]
[Title]
<PAGE>
MEMORIAL FUNDS
SUBADVISORY AGREEMENT
Appendix A
<TABLE>
<S> <C>
FUNDS OF THE TRUST Percentage of the average annual daily net assets of
the Fund represented by shares owned by investors for
which Subadviser provides services pursuant to this
Agreement
Equity Income Fund .35
</TABLE>
Exhibit (d)(4)
MEMORIAL FUNDS
SUBADVISORY AGREEMENT
AGREEMENT made as of the 10th day of August, 1999, by and among
Memorial Funds, a Delaware business trust, with its principal office and place
of business at Two Portland Square, Portland, Maine 04101, (the "Trust");
Memorial Investment Advisors, Inc., a Delaware corporation, with its principal
office and place of business at 5847 San Felipe, Suite 4545 Houston, Texas
77057, (the "Adviser") and The Glenmede Trust Company, a Pennsylvania trust
company, with its principal office and place of business at One Liberty Place,
1650 Market Street, Ste. 1200, Philadelphia, Pennsylvania 19103 (the
"Subadviser").
WHEREAS, Adviser has entered into an Investment Advisory Agreement
dated the 10th day of August, 1999, ("Advisory Agreement") with the Trust;
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended, (the "1940 Act"), as an open-end, management investment
company and may issue its shares of beneficial interest, no par value (the
"Shares"), in separate series;
WHEREAS, pursuant to the Advisory Agreement, and subject to the
direction and control of the Board of Trustees of the Trust (the "Board"), the
Adviser acts as investment adviser for each series of the Trust listed on
Schedule A hereto (each, a "Fund" and, collectively, the "Funds");
WHEREAS, the Trust and Adviser desire to retain the Subadviser to
perform investment advisory services for the Fund and Subadviser is willing to
provide those services on the terms and conditions set forth in this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Adviser and the Subadviser hereby agree as
follows:
SECTION 1. APPOINTMENT; DELIVERY OF DOCUMENTS
(a) The Trust and the Adviser hereby employ Subadviser, subject to the
direction and control of the Board, to manage the investment and reinvestment of
the assets in each Fund and, without limiting the generality of the foregoing,
to provide other services as specified herein. The Subadviser accepts this
employment and agrees to render its services for the compensation set forth
herein.
(b) In connection therewith, the Trust has delivered to the Subadviser
copies of (i) the Trust's Trust Instrument, (ii) the Trust's Registration
Statement and all amendments thereto filed with the U.S. Securities and Exchange
Commission ("SEC") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), or the 1940 Act (the "Registration Statement"), (iii) the
Trust's current Prospectuses and Statements of Additional Information of each
Fund (collectively, as currently in effect and as amended or supplemented, the
"Prospectus"), and (iv) all procedures adopted by the Trust with respect to any
Fund (i.e., repurchase agreement procedures), and shall promptly furnish the
Adviser with all amendments of or supplements to the foregoing. The Trust shall
deliver to the Subadviser (x) a certified copy of the resolution of the Board
appointing the Subadviser and authorizing the execution and delivery of this
Agreement, (y) a copy of all proxy statements and related materials relating to
any Fund, and (z) any other documents, materials or information that the
Subadviser shall reasonably request to enable it to perform its duties pursuant
to this Agreement.
(c) The Subadviser has delivered to the Adviser and the Trust (i) a
copy of its Form ADV as most recently filed with the SEC and (ii) a copy of its
code of ethics complying with the requirements of Rule 17j-1 under the 1940 Act
<PAGE>
(the "Code"). The Subadviser shall promptly furnish the Adviser and Trust with
all amendments of or supplements to the foregoing at least annually.
SECTION 2. DUTIES OF THE TRUST AND ADVISER
(a) In order for the Subadviser to perform the services required by
this Agreement, the Trust and the Adviser (i) shall, cause all service providers
to the Trust to furnish information relating to any Fund to the Subadviser and
assist the Subadviser as may be required and (ii) shall ensure that the
Subadviser has reasonable access to all records and documents maintained by the
Trust, or any service provider to the Trust.
(b) In order for the Subadviser to perform the services required by
this Agreement, the Adviser shall deliver to the Subadviser all material it
provides to the Board in accordance with the Advisory Agreement.
SECTION 3. DUTIES OF THE SUBADVISER
(a) The Subadviser will make decisions with respect to all purchases
and sales of securities and other investment assets in each Fund to the extent
such authority is delegated by the Adviser. To carry out such decisions, the
Subadviser is hereby authorized, as agent and attorney-in-fact for the Trust,
for the account of, at the risk of and in the name of the Trust, to place orders
and issue instructions with respect to those transactions of the Funds. In all
purchases, sales and other transactions in securities and other investments for
the Funds, the Subadviser is authorized to exercise full discretion and act for
the Trust in the same manner and with the same force and effect as the Trust
might or could do with respect to such purchases, sales or other transactions,
as well as with respect to all other things necessary or incidental to the
furtherance or conduct of such purchases, sales or other transactions.
Consistent with Section 28(e) of the Securities Exchange Act of 1934,
as amended, the Subadviser may allocate brokerage on behalf of the Funds to
broker-dealers who provide research services. The Subadviser may aggregate sales
and purchase orders of the assets of the Funds with similar orders being made
simultaneously for other accounts advised by the Subadviser or its affiliates.
Whenever the Subadviser simultaneously places orders to purchase or sell the
same asset on behalf of a Fund and one or more other accounts advised by the
Subadviser, the orders will be allocated as to price and amount among all such
accounts in a manner believed to be equitable over time to each account.
(b) The Subadviser will report to the Board at each meeting thereof as
requested by the Adviser or the Board all material changes in each Fund since
the prior report, and will also keep the Board informed of important
developments affecting the Trust, the Funds and the Subadviser, and on its own
initiative, will furnish the Board from time to time with such information as
the Subadviser may believe appropriate for this purpose, whether concerning the
individual companies whose securities are included in the Funds' holdings, the
industries in which they engage, the economic, social or political conditions
prevailing in each country in which the Funds maintain investments, or
otherwise. The Subadviser will also furnish the Board with such statistical and
analytical information with respect to investments of the Funds as the
Subadviser may believe appropriate or as the Board reasonably may request. In
making purchases and sales of securities and other investment assets for the
Funds, the Subadviser will bear in mind the policies set from time to time by
the Board as well as the limitations imposed by the Trust Instrument and
Registration Statement, the limitations in the 1940 Act, the Securities Act, the
Internal Revenue Code of 1986, as amended, and other applicable laws and the
investment objectives, policies and restrictions of the Funds.
(c) The Subadviser will from time to time employ or associate with such
persons as the Subadviser believes to be particularly fitted to assist in the
execution of the Subadviser's duties hereunder, the cost of performance of such
duties to be borne and paid by the Subadviser. No obligation may be incurred on
the Trust's or Adviser's behalf in any such respect.
<PAGE>
(d) The Subadviser will report to the Board all material matters
related to the Subadviser. On an annual basis, the Subadviser shall report on
its compliance with its Code to the Adviser and to the Board and upon the
written request of the Adviser or the Trust, the Subadviser shall permit the
Adviser and the Trust, or their respective representatives to examine the
reports required to be made to the Subadviser under the Code. The Subadviser
will notify the Adviser and the Trust of any change of control of the Subadviser
and any changes in the key personnel who are either the portfolio manager(s) of
the Fund or senior management of the Subadviser, in each case prior to or
promptly after such change.
(e) The Subadviser will maintain records relating to its portfolio
transactions and placing and allocation of brokerage orders as are required to
be maintained by the Trust under the 1940 Act. The Subadviser shall prepare and
maintain, or cause to be prepared and maintained, in such form, for such periods
and in such locations as may be required by applicable law, all documents and
records relating to the services provided by the Subadviser pursuant to this
Agreement required to be prepared and maintained by the Subadviser or the Trust
pursuant to applicable law. To the extent required by law, the books and records
pertaining to the Trust which are in possession of the Subadviser shall be the
property of the Trust. The Adviser and the Trust, or their respective
representatives, shall have access to such books and records at all times during
the Subadviser's normal business hours. Upon the reasonable request of the
Adviser or the Trust, copies of any such books and records shall be provided
promptly by the Subadviser to the Adviser and the Trust, or their respective
representatives.
(f) The Subadviser will cooperate with each Fund's independent public
accountants and shall take reasonable action to make all necessary information
available to the accountants for the performance of the accountants' duties.
(g) The Subadviser will provide the Funds' custodian and fund
accountant on each business day with such information relating to all
transactions concerning the Funds' assets under the Subadviser's control as the
custodian and fund accountant may reasonably require. In accordance with
procedures adopted by the Board, the Subadviser is responsible for assisting in
the fair valuation of all Fund assets and will use its reasonable efforts to
arrange for the provision of prices from parties who are not affiliated persons
of the Subadviser for each asset for which the Funds' fund accountant does not
obtain prices in the ordinary course of business.
(h) The Subadviser shall authorize and permit any of its directors,
officers and employees who may be elected as Trustees or officers of the Trust
to serve in the capacities in which they are elected.
(i) Except as otherwise agreed to by the Trust, the Adviser and the
Subadviser, during any period in which a Fund invests all (or substantially all)
of its investment assets in a registered, open-end management investment
company, or separate series thereof, in accordance with Section 12(d)(1)(E)
under the 1940 Act, the Subadviser shall have no duties or obligations pursuant
to this Agreement with respect to the Fund.
SECTION 4. COMPENSATION; EXPENSES
(a) In consideration of the foregoing, the Adviser shall pay the
Subadviser, with respect to each Fund, a fee at an annual rate as listed in
Appendix A hereto. Such fees shall be accrued by the Adviser daily and shall be
payable monthly in arrears on the first day of each calendar month for services
performed hereunder during the prior calendar month. If fees begin to accrue in
the middle of a month or if this Agreement terminates before the end of any
month, all fees for the period from that date to the end of that month or from
the beginning of that month to the date of termination, as the case may be,
shall be prorated according to the proportion that the period bears to the full
month in which the effectiveness or termination occurs. Upon the termination of
this Agreement with respect to a Fund, the Adviser shall pay to the Subadviser
such compensation as shall be payable prior to the effective date of
termination.
<PAGE>
(b) The Subadviser may agree to waive all or part of its fees by
separate agreement.
(c) No fee shall be payable hereunder with respect to a Fund during any
period in which the Fund invests all (or substantially all) of its investment
assets in a registered, open-end, management investment company, or separate
series thereof, in accordance with Section 12(d)(1)(E) under the 1940 Act.
SECTION 5. STANDARD OF CARE
(a) The Trust and Adviser shall expect of the Subadviser, and the
Subadviser will give the Trust and Adviser the benefit of, the Subadviser's best
judgment and efforts in rendering its services hereunder. The Subadviser shall
not be liable to the Adviser or the Trust hereunder for any mistake of judgment
or in any event whatsoever, except for lack of good faith, provided that nothing
herein shall be deemed to protect, or purport to protect, the Subadviser against
any liability to the Adviser or the Trust to which the Subadviser would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Subadviser's duties hereunder, or by reason
of the Subadviser's reckless disregard of its obligations and duties hereunder.
(b) The Subadviser shall not be liable to the Adviser or the Trust for
any action taken or failure to act in good faith reliance upon: (i) information,
instructions or requests, whether oral or written, with respect to a Fund that
the Subadviser reasonably believes were made by a duly authorized officer of the
Adviser or the Trust, (ii) the advice of counsel to the Trust, and (iii) any
written instruction or certified copy of any resolution of the Board.
(c) The Subadviser shall not be responsible or liable for any failure
or delay in performance of its obligations under this Agreement arising out of
or caused, directly or indirectly, by circumstances beyond its reasonable
control including, without limitation, acts of civil or military authority,
national emergencies, labor difficulties (other than those related to the
Subadviser's employees), fire, mechanical breakdowns, flood or catastrophe, acts
of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
SECTION 6. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to a Fund
immediately upon the later of approval by a majority of the Trust's trustees who
are not parties to this Agreement or interested persons of any such party (other
than as trustees of the Trust) and, if required by applicable law, by a vote of
a majority of the outstanding voting securities of the Fund.
(b) This Agreement shall remain in effect with respect to a Fund for a
period of two years from the date of its effectiveness and shall continue in
effect for successive annual periods with respect to the Fund; provided that
such continuance is specifically approved at least annually (i) by the Board or
by the vote of a majority of the outstanding voting securities of the Fund, and,
in either case, (ii) by a majority of the Trust's trustees who are not parties
to this Agreement or interested persons of any such party (other than as
trustees of the Trust); provided further, however, that if the continuation of
this Agreement is not approved as to a Fund, the Subadviser may continue to
render to that Fund the services described herein in the manner and to the
extent permitted by the 1940 Act and the rules and regulations thereunder.
(c) This Agreement may be terminated with respect to a Fund at any
time, without the payment of any penalty, (i) by the Board, by a vote of a
majority of the outstanding voting securities of the Fund or by the Adviser on
60 days' written notice to the Subadviser or (ii) by the Subadviser on 60 days'
written notice to the Trust. This Agreement shall terminate immediately (x) upon
its assignment or (y) upon termination of the Advisory Agreement.
<PAGE>
SECTION 7. ACTIVITIES OF THE SUBADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Subadviser's right, or
the right of any of the Subadviser's directors, officers or employees to engage
in any other business or to devote time and attention to the management or other
aspects of any other business, whether of a similar or dissimilar nature, or to
render services of any kind to any other corporation, trust, firm, individual or
association.
SECTION 8. REPRESENTATIONS OF SUBADVISER.
The Subadviser represents and warrants that (i) it is either registered
as an investment adviser under the Investment Advisers Act of 1940, as amended
("Advisers Act") (and will continue to be so registered for so long as this
Agreement remains in effect) or exempt from registration under the Advisers Act,
(ii) is not prohibited by the 1940 Act or the Advisers Act from performing the
services contemplated by this Agreement, (iii) has met, and will seek to
continue to meet for so long as this Agreement remains in effect, any other
applicable federal or state requirements, or the applicable requirements of any
self-regulatory agency, necessary to be met in order to perform the services
contemplated by this Agreement, and (iv) will promptly notify the Adviser and
the Trust of the occurrence of any event that would disqualify the Subadviser
from serving as an investment adviser of an investment company pursuant to
Section 9(a) of the 1940 Act or otherwise.
SECTION 9. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the shareholders of each Fund shall not
be liable for any obligations of the Trust or of the Funds under this Agreement,
and the Subadviser agrees that, in asserting any rights or claims under this
Agreement, it shall look only to the assets and property of the Trust or the
Fund to which the Subadviser's rights or claims relate in settlement of such
rights or claims, and not to the Trustees of the Trust or the shareholders of
the Funds.
SECTION 10. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto and approved by the Trust in the manner set forth in Section 6(b)
hereof.
(b) No amendment to this Agreement or the termination of this Agreement
with respect to a Fund shall effect this Agreement as it pertains to any other
Fund, nor shall any such amendment require the vote of the shareholders of any
other Fund.
(c) Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement.
(d) This Agreement shall be governed by, and the provisions of this
Agreement shall be construed and interpreted under and in accordance with, the
laws of the State of Delaware.
(e) This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof, whether oral or written.
(f) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
(g) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
<PAGE>
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(h) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(i) Notices, requests, instructions and communications received by the
parties at their respective principal places of business, or at such other
address as a party may have designated in writing, shall be deemed to have been
properly given.
(j) Notwithstanding any other provision of this Agreement, the parties
agree that the assets and liabilities of each Fund are separate and distinct
from the assets and liabilities of any other series of the Trust and that no
Fund or other series of the Trust shall be liable or shall be charged for any
debt, obligation or liability of any other Fund or series, whether arising under
this Agreement or otherwise.
(k) No affiliated person, employee, agent, director, officer or manager
of the Subadviser shall be liable at law or in equity for the Subadviser's
obligations under this Agreement.
(l) The terms "vote of a majority of the outstanding voting
securities", "interested person", "affiliated person," "control" and
"assignment" shall have the meanings ascribed thereto in the 1940 Act.
(m) Each of the undersigned warrants and represents that they have full
power and authority to sign this Agreement on behalf of the party indicated and
that their signature will bind the party indicated to the terms hereof and each
party hereto warrants and represents that this Agreement, when executed and
delivered, will constitute a legal, valid and binding obligation of the party,
enforceable against the party in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
MEMORIAL FUNDS
/s/ Thomas G. Sheehan
----------------------------------
Thomas G. Sheehan
Vice President
MEMORIAL INVESTMENT ADVISORS, INC.
/s/ Christopher W. Hamm
----------------------------------
Christopher W. Hamm
President
THE GLENMEDE TRUST COMPANY
/s/ James S. Lobb
-----------------------------------
James S. Lobb
Senior Vice President
<PAGE>
MEMORIAL FUNDS
SUBADVISORY AGREEMENT
Appendix A
FEE AS A % OF THE ANNUAL
FUNDS OF THE TRUST AVERAGE DAILY NET ASSETS OF THE FUND
International Equity Fund .40
Exhibit (d)(5)
MEMORIAL FUNDS
SUBADVISORY AGREEMENT
AGREEMENT made as of the 10th day of August, 1999, by and among
Memorial Funds, a Delaware business trust, with its principal office and place
of business at Two Portland Square, Portland, Maine 04101, (the "Trust");
Memorial Investment Advisors, Inc., a Delaware corporation, with its principal
office and place of business at 5847 San Felipe, Suite 4545 Houston, Texas
77057, (the "Adviser") and PPM America, Inc., a Delaware corporation, with its
principal office and place of business at 225 West Wacker Drive, Suite 1200,
Chicago, Illinois 60606 (the "Subadviser").
WHEREAS, Adviser has entered into an Investment Advisory Agreement
dated the 10th day of August, 1999, ("Advisory Agreement") with the Trust;
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended, (the "1940 Act"), as an open-end, management investment
company and may issue its shares of beneficial interest, no par value (the
"Shares"), in separate series;
WHEREAS, pursuant to the Advisory Agreement, and subject to the
direction and control of the Board of Trustees of the Trust (the "Board"), the
Adviser acts as investment adviser for each series of the Trust listed on
Schedule A hereto (each, a "Fund" and, collectively, the "Funds");
WHEREAS, the Trust and Adviser desire to retain the Subadviser to
perform investment advisory services for the Fund and Subadviser is willing to
provide those services on the terms and conditions set forth in this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Adviser and the Subadviser hereby agree as
follows:
SECTION 1. APPOINTMENT; DELIVERY OF DOCUMENTS
(a) The Trust and the Adviser hereby employ Subadviser, subject to the
direction and control of the Board, to manage the investment and reinvestment of
the assets in each Fund and, without limiting the generality of the foregoing,
to provide other services as specified herein. The Subadviser accepts this
employment and agrees to render its services for the compensation set forth
herein.
(b) In connection therewith, the Trust has delivered to the Subadviser
copies of (i) the Trust's Trust Instrument, (ii) the Trust's Registration
Statement and all amendments thereto filed with the U.S. Securities and Exchange
Commission ("SEC") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), or the 1940 Act (the "Registration Statement"), (iii) the
Trust's current Prospectuses and Statements of Additional Information of each
Fund (collectively, as currently in effect and as amended or supplemented, the
"Prospectus"), and (iv) all procedures adopted by the Trust with respect to any
Fund (i.e., repurchase agreement procedures), and shall promptly furnish the
Adviser with all amendments of or supplements to the foregoing. The Trust shall
deliver to the Subadviser (x) a certified copy of the resolution of the Board
appointing the Subadviser and authorizing the execution and delivery of this
Agreement, (y) a copy of all proxy statements and related materials relating to
any Fund, and (z) any other documents, materials or information that the
Subadviser shall reasonably request to enable it to perform its duties pursuant
to this Agreement.
(c) The Subadviser has delivered to the Adviser and the Trust (i) a
copy of its Form ADV as most recently filed with the SEC and (ii) a copy of its
code of ethics complying with the requirements of Rule 17j-1 under the 1940 Act
<PAGE>
(the "Code"). The Subadviser shall promptly furnish the Adviser and Trust with
all amendments of or supplements to the foregoing at least annually.
SECTION 2. DUTIES OF THE TRUST AND ADVISER
(a) In order for the Subadviser to perform the services required by
this Agreement, the Trust and the Adviser (i) shall, cause all service providers
to the Trust to furnish information relating to any Fund to the Subadviser and
assist the Subadviser as may be required and (ii) shall ensure that the
Subadviser has reasonable access to all records and documents maintained by the
Trust, or any service provider to the Trust.
(b) In order for the Subadviser to perform the services required by
this Agreement, the Adviser shall deliver to the Subadviser all material it
provides to the Board in accordance with the Advisory Agreement.
SECTION 3. DUTIES OF THE SUBADVISER
(a) The Subadviser will make decisions with respect to all purchases
and sales of securities and other investment assets in each Fund to the extent
such authority is delegated by the Adviser. To carry out such decisions, the
Subadviser is hereby authorized, as agent and attorney-in-fact for the Trust,
for the account of, at the risk of and in the name of the Trust, to place orders
and issue instructions with respect to those transactions of the Funds. In all
purchases, sales and other transactions in securities and other investments for
the Funds, the Subadviser is authorized to exercise full discretion and act for
the Trust in the same manner and with the same force and effect as the Trust
might or could do with respect to such purchases, sales or other transactions,
as well as with respect to all other things necessary or incidental to the
furtherance or conduct of such purchases, sales or other transactions.
Consistent with Section 28(e) of the Securities Exchange Act of 1934,
as amended, the Subadviser may allocate brokerage on behalf of the Funds to
broker-dealers who provide research services. The Subadviser may aggregate sales
and purchase orders of the assets of the Funds with similar orders being made
simultaneously for other accounts advised by the Subadviser or its affiliates.
Whenever the Subadviser simultaneously places orders to purchase or sell the
same asset on behalf of a Fund and one or more other accounts advised by the
Subadviser, the orders will be allocated as to price and amount among all such
accounts in a manner believed to be equitable over time to each account.
(b) The Subadviser will report to the Board at each meeting thereof as
requested by the Adviser or the Board all material changes in each Fund since
the prior report, and will also keep the Board informed of important
developments affecting the Trust, the Funds and the Subadviser, and on its own
initiative, will furnish the Board from time to time with such information as
the Subadviser may believe appropriate for this purpose, whether concerning the
individual companies whose securities are included in the Funds' holdings, the
industries in which they engage, the economic, social or political conditions
prevailing in each country in which the Funds maintain investments, or
otherwise. The Subadviser will also furnish the Board with such statistical and
analytical information with respect to investments of the Funds as the
Subadviser may believe appropriate or as the Board reasonably may request. In
making purchases and sales of securities and other investment assets for the
Funds, the Subadviser will bear in mind the policies set from time to time by
the Board as well as the limitations imposed by the Trust Instrument and
Registration Statement, the limitations in the 1940 Act, the Securities Act, the
Internal Revenue Code of 1986, as amended, and other applicable laws and the
investment objectives, policies and restrictions of the Funds.
(c) The Subadviser will from time to time employ or associate with such
persons as the Subadviser believes to be particularly fitted to assist in the
execution of the Subadviser's duties hereunder, the cost of performance of such
duties to be borne and paid by the Subadviser. No obligation may be incurred on
the Trust's or Adviser's behalf in any such respect.
<PAGE>
(d) The Subadviser will report to the Board all material matters
related to the Subadviser. On an annual basis, the Subadviser shall report on
its compliance with its Code to the Adviser and to the Board and upon the
written request of the Adviser or the Trust, the Subadviser shall permit the
Adviser and the Trust, or their respective representatives to examine the
reports required to be made to the Subadviser under the Code. The Subadviser
will notify the Adviser and the Trust of any change of control of the Subadviser
and any changes in the key personnel who are either the portfolio manager(s) of
the Fund or senior management of the Subadviser, in each case prior to or
promptly after such change.
(e) The Subadviser will maintain records relating to its portfolio
transactions and placing and allocation of brokerage orders as are required to
be maintained by the Trust under the 1940 Act. The Subadviser shall prepare and
maintain, or cause to be prepared and maintained, in such form, for such periods
and in such locations as may be required by applicable law, all documents and
records relating to the services provided by the Subadviser pursuant to this
Agreement required to be prepared and maintained by the Subadviser or the Trust
pursuant to applicable law. To the extent required by law, the books and records
pertaining to the Trust which are in possession of the Subadviser shall be the
property of the Trust. The Adviser and the Trust, or their respective
representatives, shall have access to such books and records at all times during
the Subadviser's normal business hours. Upon the reasonable request of the
Adviser or the Trust, copies of any such books and records shall be provided
promptly by the Subadviser to the Adviser and the Trust, or their respective
representatives.
(f) The Subadviser will cooperate with each Fund's independent public
accountants and shall take reasonable action to make all necessary information
available to the accountants for the performance of the accountants' duties.
(g) The Subadviser will provide the Funds' custodian and fund
accountant on each business day with such information relating to all
transactions concerning the Funds' assets under the Subadviser's control as the
custodian and fund accountant may reasonably require. In accordance with
procedures adopted by the Board, the Subadviser is responsible for assisting in
the fair valuation of all Fund assets and will use its reasonable efforts to
arrange for the provision of prices from parties who are not affiliated persons
of the Subadviser for each asset for which the Funds' fund accountant does not
obtain prices in the ordinary course of business.
(h) The Subadviser shall authorize and permit any of its directors,
officers and employees who may be elected as Trustees or officers of the Trust
to serve in the capacities in which they are elected.
(i) Except as otherwise agreed to by the Trust, the Adviser and the
Subadviser, during any period in which a Fund invests all (or substantially all)
of its investment assets in a registered, open-end management investment
company, or separate series thereof, in accordance with Section 12(d)(1)(E)
under the 1940 Act, the Subadviser shall have no duties or obligations pursuant
to this Agreement with respect to the Fund.
SECTION 4. COMPENSATION; EXPENSES
(a) In consideration of the foregoing, the Adviser shall pay the
Subadviser, with respect to each Fund, a fee at an annual rate as listed in
Appendix A hereto. Such fees shall be accrued by the Adviser daily and shall be
payable monthly in arrears on the first day of each calendar month for services
performed hereunder during the prior calendar month. If fees begin to accrue in
the middle of a month or if this Agreement terminates before the end of any
month, all fees for the period from that date to the end of that month or from
the beginning of that month to the date of termination, as the case may be,
shall be prorated according to the proportion that the period bears to the full
month in which the effectiveness or termination occurs. Upon the termination of
this Agreement with respect to a Fund, the Adviser shall pay to the Subadviser
such compensation as shall be payable prior to the effective date of
termination.
<PAGE>
(b) The Subadviser may agree to waive all or part of its fees by
separate agreement.
(c) No fee shall be payable hereunder with respect to a Fund during any
period in which the Fund invests all (or substantially all) of its investment
assets in a registered, open-end, management investment company, or separate
series thereof, in accordance with Section 12(d)(1)(E) under the 1940 Act.
SECTION 5. STANDARD OF CARE
(a) The Trust and Adviser shall expect of the Subadviser, and the
Subadviser will give the Trust and Adviser the benefit of, the Subadviser's best
judgment and efforts in rendering its services hereunder. The Subadviser shall
not be liable to the Adviser or the Trust hereunder for any mistake of judgment
or in any event whatsoever, except for lack of good faith, provided that nothing
herein shall be deemed to protect, or purport to protect, the Subadviser against
any liability to the Adviser or the Trust to which the Subadviser would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Subadviser's duties hereunder, or by reason
of the Subadviser's reckless disregard of its obligations and duties hereunder.
(b) The Subadviser shall not be liable to the Adviser or the Trust for
any action taken or failure to act in good faith reliance upon: (i) information,
instructions or requests, whether oral or written, with respect to a Fund that
the Subadviser reasonably believes were made by a duly authorized officer of the
Adviser or the Trust, (ii) the advice of counsel to the Trust, and (iii) any
written instruction or certified copy of any resolution of the Board.
(c) The Subadviser shall not be responsible or liable for any failure
or delay in performance of its obligations under this Agreement arising out of
or caused, directly or indirectly, by circumstances beyond its reasonable
control including, without limitation, acts of civil or military authority,
national emergencies, labor difficulties (other than those related to the
Subadviser's employees), fire, mechanical breakdowns, flood or catastrophe, acts
of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
SECTION 6. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to a Fund
immediately upon the later of approval by a majority of the Trust's trustees who
are not parties to this Agreement or interested persons of any such party (other
than as trustees of the Trust) and, if required by applicable law, by a vote of
a majority of the outstanding voting securities of the Fund.
(b) This Agreement shall remain in effect with respect to a Fund for a
period of two years from the date of its effectiveness and shall continue in
effect for successive annual periods with respect to the Fund; provided that
such continuance is specifically approved at least annually (i) by the Board or
by the vote of a majority of the outstanding voting securities of the Fund, and,
in either case, (ii) by a majority of the Trust's trustees who are not parties
to this Agreement or interested persons of any such party (other than as
trustees of the Trust); provided further, however, that if the continuation of
this Agreement is not approved as to a Fund, the Subadviser may continue to
render to that Fund the services described herein in the manner and to the
extent permitted by the 1940 Act and the rules and regulations thereunder.
(c) This Agreement may be terminated with respect to a Fund at any
time, without the payment of any penalty, (i) by the Board, by a vote of a
majority of the outstanding voting securities of the Fund or by the Adviser on
60 days' written notice to the Subadviser or (ii) by the Subadviser on 60 days'
written notice to the Trust. This Agreement shall terminate immediately (x) upon
its assignment or (y) upon termination of the Advisory Agreement.
<PAGE>
SECTION 7. ACTIVITIES OF THE SUBADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Subadviser's right, or
the right of any of the Subadviser's directors, officers or employees to engage
in any other business or to devote time and attention to the management or other
aspects of any other business, whether of a similar or dissimilar nature, or to
render services of any kind to any other corporation, trust, firm, individual or
association.
SECTION 8. REPRESENTATIONS OF SUBADVISER.
The Subadviser represents and warrants that (i) it is either registered
as an investment adviser under the Investment Advisers Act of 1940, as amended
("Advisers Act") (and will continue to be so registered for so long as this
Agreement remains in effect) or exempt from registration under the Advisers Act,
(ii) is not prohibited by the 1940 Act or the Advisers Act from performing the
services contemplated by this Agreement, (iii) has met, and will seek to
continue to meet for so long as this Agreement remains in effect, any other
applicable federal or state requirements, or the applicable requirements of any
self-regulatory agency, necessary to be met in order to perform the services
contemplated by this Agreement, and (iv) will promptly notify the Adviser and
the Trust of the occurrence of any event that would disqualify the Subadviser
from serving as an investment adviser of an investment company pursuant to
Section 9(a) of the 1940 Act or otherwise.
SECTION 9. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the shareholders of each Fund shall not
be liable for any obligations of the Trust or of the Funds under this Agreement,
and the Subadviser agrees that, in asserting any rights or claims under this
Agreement, it shall look only to the assets and property of the Trust or the
Fund to which the Subadviser's rights or claims relate in settlement of such
rights or claims, and not to the Trustees of the Trust or the shareholders of
the Funds.
SECTION 10. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto and approved by the Trust in the manner set forth in Section 6(b)
hereof.
(b) No amendment to this Agreement or the termination of this Agreement
with respect to a Fund shall effect this Agreement as it pertains to any other
Fund, nor shall any such amendment require the vote of the shareholders of any
other Fund.
(c) Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement.
(d) This Agreement shall be governed by, and the provisions of this
Agreement shall be construed and interpreted under and in accordance with, the
laws of the State of Delaware.
(e) This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof, whether oral or written.
(f) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
(g) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
<PAGE>
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(h) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(i) Notices, requests, instructions and communications received by the
parties at their respective principal places of business, or at such other
address as a party may have designated in writing, shall be deemed to have been
properly given.
(j) Notwithstanding any other provision of this Agreement, the parties
agree that the assets and liabilities of each Fund are separate and distinct
from the assets and liabilities of any other series of the Trust and that no
Fund or other series of the Trust shall be liable or shall be charged for any
debt, obligation or liability of any other Fund or series, whether arising under
this Agreement or otherwise.
(k) No affiliated person, employee, agent, director, officer or manager
of the Subadviser shall be liable at law or in equity for the Subadviser's
obligations under this Agreement.
(l) The terms "vote of a majority of the outstanding voting
securities", "interested person", "affiliated person," "control" and
"assignment" shall have the meanings ascribed thereto in the 1940 Act.
(m) Each of the undersigned warrants and represents that they have full
power and authority to sign this Agreement on behalf of the party indicated and
that their signature will bind the party indicated to the terms hereof and each
party hereto warrants and represents that this Agreement, when executed and
delivered, will constitute a legal, valid and binding obligation of the party,
enforceable against the party in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
MEMORIAL FUNDS
Thomas G. Sheehan
--------------------------------
Thomas G. Sheehan
Vice President
MEMORIAL INVESTMENT ADVISORS, INC.
/s/ Christopher W. Hamm
--------------------------------
Christopher W. Hamm
President
PPM AMERICA, INC.
/s/ Mark Mandich
--------------------------------
Mark Mandich
Executive Vice President
<PAGE>
MEMORIAL FUNDS
SUBADVISORY AGREEMENT
<TABLE>
<S> <C>
Appendix A
FUNDS OF THE TRUST Percentage of the average annual daily net assets of
Equity Income Fund the Fund represented by shares owned by investors for
which Subadviser provides services pursuant to this
Agreement
.30
</TABLE>
Exhibit (g)(3)
[Logo] CHASE
GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective August 13, 1999, and is between THE CHASE
MANHATTAN BANK ("Bank") and Memorial Funds ("Customer").
1. Customer Accounts.
Bank, acting as "Securities Intermediary" (as defined in Section 15(g)
hereof) shall establish and maintain the following accounts ("Accounts"): (a) a
Custody Account (as defined in Section 15(b) hereof) in the name of Customer for
Financial Assets, which shall, except as modified by Section 15(d) hereof, mean
stocks, shares, bonds, debentures, notes, mortgages or other obligations for the
payment of money, bullion, coin and any certificates, receipts, warrants or
other instruments representing rights to receive, purchase or subscribe for the
same or evidencing or representing any other rights or interests therein and
other similar property whether certificated or uncertificated as may be received
by Bank or its Subcustodian (as defined in Section 3 hereof) for the account of
Customer, including as an "Entitlement Holder" as defined in Section 15(c)
hereof); and
(b) an account in the name of Customer ("Deposit Account") for any and
all cash in any currency received by Bank or its Subcustodian for the account of
Customer, which cash shall not be subject to withdrawal by draft or check.
Customer warrants its authority to: 1) deposit the cash and Financial
Assets (collectively "Assets") received in the Accounts and 2) give Instructions
(as defined in Section 11 hereof) concerning the Accounts. Bank may deliver
Financial Assets of the same class in place of those deposited in the Custody
Account.
Upon written agreement between Bank and Customer, additional Accounts
may be established and separately accounted for as additional Accounts
hereunder.
2. Maintenance of Financial Assets and Cash at Bank and Subcustodian Locations.
Unless Instructions specifically require another location acceptable to
Bank:
(a) Financial Assets shall be held in the country or other jurisdiction
in which the principal trading market for such Financial Assets is located,
where such Financial Assets are to be presented for payment or where such
Financial Assets are acquired; and
(b) Cash shall be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.
Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular currency.
To the extent Instructions are issued and Bank can comply with such
Instructions, Bank is authorized to maintain cash balances on deposit for
Customer with itself or one of its "Affiliates" at such reasonable rates of
interest as may from time to time be paid on such accounts, or in
<PAGE>
non-interest bearing accounts as Customer may direct, if acceptable to Bank. For
purposes hereof, the term "Affiliate" shall mean an entity controlling,
controlled by, or under common control with, Bank.
If Customer wishes to have any of its Assets held in the custody of an
institution other than the established Subcustodians as defined in Section 3 (or
their securities depositories), such arrangement must be authorized by a written
agreement, signed by Bank and Customer.
3. Subcustodians and Securities Depositories.
Bank may act hereunder through the subcustodians listed in Schedule A
hereof with which Bank has entered into subcustodial agreements
("Subcustodians"). Customer authorizes Bank to hold Assets in the Accounts in
accounts which Bank has established with one or more of its branches or
Subcustodians. Bank and Subcustodians are authorized to hold any of Financial
Assets in their account with any securities depository in which they
participate.
Bank reserves the right to add new, replace or remove Subcustodians.
Customer shall be given reasonable notice by Bank of any amendment to Schedule
A. Upon request by Customer, Bank shall identify the name, address and principal
place of business of any Subcustodian of Customer's Assets and the name and
address of the governmental agency or other regulatory authority that supervises
or regulates such Subcustodian.
4. Use of Subcustodian.
(a) Bank shall identify the Assets on its books as belonging to
Customer.
(b) A Subcustodian shall hold such Assets together with assets
belonging to other customers of Bank in accounts identified on such
Subcustodian's books as custody accounts for the exclusive benefit of customers
of Bank.
(c) Any Assets in the Accounts held by a Subcustodian shall be subject
only to the instructions of Bank or its agent. Any Financial Assets held in a
securities depository for the account of a Subcustodian shall be subject only to
the instructions of such Subcustodian.
(d) Any agreement Bank enters into with a Subcustodian for holding
Bank's customers' assets shall provide that such assets shall not be subject to
any right, charge, security interest, lien or claim of any kind in favor of such
Subcustodian except for safe custody or administration, and that the beneficial
ownership of such assets shall be freely transferable without the payment of
money or value other than for safe custody or administration, or, in the case of
cash deposits, except for liens or rights in favor of creditors of the
Subcustodian arising under bankruptcy, insolvency or similar laws. Where
Securities are deposited by a Subcustodian with a securities depository, Bank
shall cause the Subcustodian to identify on its books as belonging to Bank, as
agent, the Securities shown on the Subcustodian's account on the books of such
securities depository. The foregoing shall not apply to the extent of any
special agreement or arrangement made by Customer with any particular
Subcustodian.
5. Deposit Account Transactions.
(a) Bank or its Subcustodians shall make payments from the Deposit
Account upon receipt of Instructions which include all information required by
Bank.
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(b) In the event that any payment to be made under this Section 5
exceeds the funds available in the Deposit Account, Bank, in its discretion, may
advance Customer such excess amount which shall be deemed a loan payable on
demand, bearing interest at the rate customarily charged by Bank on similar
loans.
(c) If Bank credits the Deposit Account on a payable date, or at any
time prior to actual collection and reconciliation to the Deposit Account, with
interest, dividends, redemptions or any other amount due, Customer shall
promptly return any such amount upon oral or written notification: (i) that such
amount has not been received in the ordinary course of business or (ii) that
such amount was incorrectly credited. If Customer does not promptly return any
amount upon such notification, Bank shall be entitled, upon oral or written
notification to Customer, to reverse such credit by debiting the Deposit Account
for the amount previously credited. Bank or its Subcustodian shall have no duty
or obligation to institute legal proceedings, file a claim or a proof of claim
in any insolvency proceeding or take any other action with respect to the
collection of such amount, but may act for Customer upon Instructions after
consultation with Customer.
6. Custody Account Transactions.
(a) Financial Assets shall be transferred, exchanged or delivered by
Bank or its Subcustodian upon receipt by Bank of Instructions which include all
information required by Bank. Settlement and payment for Financial Assets
received for, and delivery of Financial Assets out of, the Custody Account may
be made in accordance with the customary or established securities trading or
securities processing practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation, delivery of
Financial Assets to a purchaser, dealer or their agents against a receipt with
the expectation of receiving later payment and free delivery. Delivery of
Financial Assets out of the Custody Account may also be made in any manner
specifically required by Instructions acceptable to Bank.
(b) Bank, in its discretion, may credit or debit the Accounts on a
contractual settlement date with cash or Financial Assets with respect to any
sale, exchange or purchase of Financial Assets. Otherwise, such transactions
shall be credited or debited to the Accounts on the date cash or Financial
Assets are actually received by Bank and reconciled to the Account.
(i) Bank may reverse credits or debits made to the Accounts in
its discretion if the related transaction fails to settle within a
reasonable period, determined by Bank in its discretion, after the
contractual settlement date for the related transaction.
(ii) If any Financial Assets delivered pursuant to this
Section 6 are returned by the recipient thereof, Bank may reverse the
credits and debits of the particular transaction at any time.
7. Actions of Bank.
Bank shall follow Instructions received regarding Assets held in the
Accounts. However, until it receives Instructions to the contrary, Bank shall:
(a) Present for payment any Financial Assets which are called, redeemed
or retired or otherwise become payable and all coupons and other income items
which call for payment upon presentation, to the extent that Bank or
Subcustodian is actually aware of such opportunities.
(b) Execute in the name of Customer such ownership and other
certificates as may be required to obtain payments in respect of Financial
Assets.
(c) Exchange interim receipts or temporary Financial Assets for
definitive Financial Assets.
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(d) Appoint brokers and agents for any transaction involving the
Financial Assets, including, without limitation, Affiliates of Bank or any
Subcustodian.
(e) Issue statements to Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.
Bank shall send Customer an advice or notification of any transfers of
Assets to or from the Accounts. Such statements, advices or notifications shall
indicate the identity of the entity having custody of the Assets. Unless
Customer sends Bank a written exception or objection to any Bank statement
within sixty (60) days of receipt, Customer shall be deemed to have approved
such statement. In such event, or where Customer has otherwise approved any such
statement, Bank shall, to the extent permitted by law, be released, relieved and
discharged with respect to all matters set forth in such statement or reasonably
implied therefrom as though it had been settled by the decree of a court of
competent jurisdiction in an action where Customer and all persons having or
claiming an interest in Customer or Customer's Accounts were parties.
All collections of funds or other property paid or distributed in
respect of Financial Assets in the Custody Account shall be made at the risk of
Customer. Bank shall have no liability for any loss occasioned by delay in the
actual receipt of notice by Bank or by its Subcustodians of any payment,
redemption or other transaction regarding Financial Assets in the Custody
Account in respect of which Bank has agreed to take any action hereunder.
8. Corporate Actions; Proxies; Tax Reclaims.
(a) Corporate Actions. Whenever Bank receives information concerning
the Financial Assets which requires discretionary action by the beneficial owner
of the Financial Assets (other than a proxy), such as subscription rights, bonus
issues, stock repurchase plans and rights offerings, or legal notices or other
material intended to be transmitted to securities holders ("Corporate Actions"),
Bank shall give Customer notice of such Corporate Actions to the extent that
Bank's central corporate actions department has actual knowledge of a Corporate
Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action is
received which bears an expiration date, Bank shall endeavor to obtain
Instructions from Customer or its Authorized Person (as defined in Section 10
hereof), but if Instructions are not received in time for Bank to take timely
action, or actual notice of such Corporate Action was received too late to seek
Instructions, Bank is authorized to sell such rights entitlement or fractional
interest and to credit the Deposit Account with the proceeds or take any other
action it deems, in good faith, to be appropriate in which case it shall be held
harmless for any such action.
(b) Proxy Voting. Bank shall provide proxy voting services, if elected
by Customer, in accordance with the terms of the proxy voting services rider
hereto. Proxy voting services may be provided by Bank or, in whole or in part,
by one or more third parties appointed by Bank (which may be Affiliates of
Bank).
(c) Tax Reclaims.
(i) Subject to the provisions hereof, Bank shall apply for a
reduction of withholding tax and any refund of any tax paid or tax
credits which apply in each applicable market in respect of income
payments on Financial Assets for the benefit of Customer which Bank
believes may be available to such Customer.
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(ii) The provision of tax reclaim services by Bank is
conditional upon Bank receiving from the beneficial owner of Financial
Assets (A) a declaration of its identity and place of residence and (B)
certain other documentation (pro forma copies of which are available
from Bank). Customer acknowledges that, if Bank does not receive such
declarations, documentation and information, additional United Kingdom
taxation shall be deducted from all income received in respect of
Financial Assets issued outside the United Kingdom and that U.S.
non-resident alien tax or U.S. backup withholding tax shall be deducted
from U.S. source income. Customer shall provide to Bank such
documentation and information as it may require in connection with
taxation, and warrants that, when given, this information shall be true
and correct in every respect, not misleading in any way, and contain
all material information. Customer undertakes to notify Bank
immediately if any such information requires updating or amendment.
(iii) Bank shall not be liable to Customer or any third party
for any taxes, fines or penalties payable by Bank or Customer, and
shall be indemnified accordingly, whether these result from the
inaccurate completion of documents by Customer or any third party
acting as agent for Customer, or as a result of the provision to Bank
or any third party of inaccurate or misleading information or the
withholding of material information by Customer or any other third
party, or as a result of any delay of any revenue authority or any
other matter beyond the control of Bank.
(iv) Customer confirms that Bank is authorized to deduct from
any cash received or credited to the Deposit Account any taxes or
levies required by any revenue or governmental authority for whatever
reason in respect of the Securities or Cash Accounts.
(v) Bank shall perform tax reclaim services only with respect
to taxation levied by the revenue authorities of the countries notified
to Customer from time to time and Bank may, by notification in writing,
at its absolute discretion, supplement or amend the markets in which
the tax reclaim services are offered. Other than as expressly provided
in this sub-clause, Bank shall have no responsibility with regard to
Customer's tax position or status in any jurisdiction.
(vi) Customer confirms that Bank is authorized to disclose any
information requested by any revenue authority or any governmental body
in relation to Customer or the Financial Assets and/or Cash held for
Customer.
(vii) Tax reclaim services may be provided by Bank or, in
whole or in part, by one or more third parties appointed by Bank (which
may be Affiliates of Bank); provided that Bank shall be liable for the
performance of any such third party to the same extent as Bank would
have been if it performed such services itself.
9. Nominees.
Financial Assets which are ordinarily held in registered form may be
registered in a nominee name of Bank, Subcustodian or securities depository, as
the case may be. Bank may without notice to Customer cause any such Financial
Assets to cease to be registered in the name of any such nominee and to be
registered in the name of Customer. In the event that any Financial Assets
registered in a nominee name are called for partial redemption by the issuer,
Bank may allot the called portion to the respective beneficial holders of such
class of security in any manner Bank deems to be fair and equitable. Customer
shall hold Bank, Subcustodians, and their respective nominees harmless from any
liability arising directly or indirectly from their status as a mere record
holder of Financial Assets in the Custody Account.
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10. Authorized Persons.
As used herein, the term "Authorized Person" means employees or agents
including investment managers as have been designated by written notice from
Customer or its designated agent to act on behalf of Customer hereunder. Such
persons shall continue to be Authorized Persons until such time as Bank receives
Instructions from Customer or its designated agent that any such employee or
agent is no longer an Authorized Person.
11. Instructions.
The term "Instructions" means instructions of any Authorized Person
received by Bank, via telephone, telex, facsimile transmission, bank wire or
other teleprocess or electronic instruction or trade information system
acceptable to Bank which Bank believes in good faith to have been given by
Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which Bank may specify. Unless
otherwise expressly provided, all Instructions shall continue in full force and
effect until canceled or superseded. The term "Instructions" includes, without
limitation, instructions to sell, assign, transfer, deliver, purchase or receive
for the Custody Account, any and all stocks, bonds and other Financial Assets or
to transfer funds in the Cash Account.)
Any Instructions delivered to Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which confirmation
may bear the facsimile signature of such Person), but Customer shall hold Bank
harmless for the failure of an Authorized Person to send such confirmation in
writing, the failure of such confirmation to conform to the telephone
instructions received or Bank's failure to produce such confirmation at any
subsequent time. Bank may electronically record any Instructions given by
telephone, and any other telephone discussions with respect to the Custody
Account. Customer shall be responsible for safeguarding any testkeys,
identification codes or other security devices which Bank shall make available
to Customer or its Authorized Persons.
12. Standard of Care; Liabilities.
(a) Bank shall be responsible for the performance of only such duties
as are set forth herein or expressly contained in Instructions which are
consistent with the provisions hereof as follows:
(i) Bank shall use reasonable care with respect to its
obligations hereunder and the safekeeping of Assets. The Bank shall be
liable to the Customer for any loss which shall occur as the result of
the failure of a Subcustodian to exercise reasonable care with respect
to the safekeeping of such Assets to the same extent that the Bank
would be liable to the Customer if the Bank were holding such Assets in
New York. In the event of any loss to Customer by reason of the failure
of Bank or its Subcustodian to utilize reasonable care, Bank shall be
liable to Customer only to the extent of Customer's direct damages, to
be determined based on the market value of the property which is the
subject of the loss at the date of discovery of such loss and without
reference to any special conditions or circumstances. Bank shall have
no liability whatsoever for any consequential, special, indirect or
speculative loss or damages (including, but not limited to, lost
profits) suffered by Customer in connection with the transactions
contemplated hereby and the relationship established hereby even if
Bank has been advised as to the possibility of the same and regardless
of the form of the action.
(ii) Bank shall not be responsible for the insolvency of any
Subcustodian which is not a branch or Affiliate of Bank. Bank shall not
be responsible for any act, omission, default or the solvency of any
broker or agent which it or a Subcustodian appoints unless such
appointment was made negligently or in bad faith.
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(iii) Bank shall be indemnified by, and without liability to
Customer for any action taken or omitted by Bank whether pursuant to
Instructions or otherwise within the scope hereof if such act or
omission was in good faith, without negligence. In performing its
obligations hereunder, Bank may rely on the genuineness of any document
which it believes in good faith to have been validly executed.
(iv) Customer shall pay for and hold Bank harmless from any
liability or loss resulting from the imposition or assessment of any
taxes or other governmental charges, and any related expenses with
respect to income from or Assets in the Accounts.
(v) Bank shall be entitled to rely, and may act, upon the
advice of counsel (who may be counsel for Customer) on all matters and
shall be without liability for any action reasonably taken or omitted
pursuant to such advice.
(vi) Bank need not maintain any insurance for the benefit of
Customer.
(vii) Without limiting the foregoing, Bank shall not be liable
for any loss which results from: 1) the general risk of investing, or
2) investing or holding Assets in a particular country including, but
not limited to, losses resulting from malfunction, interruption of or
error in the transmission of information caused by any machines or
system or interruption of communication facilities, abnormal operating
conditions, nationalization, expropriation or other governmental
actions; regulation of the banking or securities industry; currency
restrictions, devaluations or fluctuations; and market conditions which
prevent the orderly execution of securities transactions or affect the
value of Assets.
(viii) Neither party shall be liable to the other for any loss
due to forces beyond their control including, but not limited to
strikes or work stoppages, acts of war (whether declared or undeclared)
or terrorism, insurrection, revolution, nuclear fusion, fission or
radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that Bank shall have no duty or
responsibility to:
(i) question Instructions or make any suggestions to
Customer or an Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to
investments or the retention of Financial Assets;
(iii) advise Customer or an Authorized Person regarding any
default in the payment of principal or income of any security other
than as provided in Section 5(c) hereof;
(iv) evaluate or report to Customer or an Authorized Person
regarding the financial condition of any broker, agent or other party
to which Financial Assets are delivered or payments are made pursuant
hereto; and
(v) review or reconcile trade confirmations received from
brokers. Customer or its Authorized Persons issuing Instructions shall
bear any responsibility to review such confirmations against
Instructions issued to and statements issued by Bank.
(c) Customer authorizes Bank to act hereunder notwithstanding that Bank
or any of its divisions or Affiliates may have a material interest in a
transaction, or circumstances are such that Bank may have a potential conflict
of duty or interest including the fact that Bank or any of its Affiliates may
provide brokerage services to
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other customers, act as financial advisor to the issuer of Financial Assets, act
as a lender to the issuer of Financial Assets, act in the same transaction as
agent for more than one customer, have a material interest in the issue of
Financial Assets, or earn profits from any of the activities listed herein.
13. Fees and Expenses.
Customer shall pay Bank for its services hereunder the fees set forth
in Schedule B hereto or such other amounts as may be agreed upon in writing,
together with Bank's reasonable out-of-pocket or incidental expenses, including,
but not limited to, legal fees. Bank shall have a lien on and is authorized to
charge any Accounts of Customer for any amount owing to Bank under any provision
hereof
14. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate the administration of
Customer's trading and investment activity, Bank is authorized to enter into
spot or forward foreign exchange contracts with Customer or an Authorized Person
for Customer and may also provide foreign exchange through its subsidiaries,
Affiliates or Subcustodians. Instructions, including standing instructions, may
be issued with respect to such contracts but Bank may establish rules or
limitations concerning any foreign exchange facility made available. In all
cases where Bank, its subsidiaries, Affiliates or Subcustodians enter into a
foreign exchange contract related to Accounts, the terms and conditions of the
then current foreign exchange contract of Bank, its subsidiary, Affiliate or
Subcustodian and, to the extent not inconsistent, this Agreement shall apply to
such transaction.
(b) Certification of Residency, etc. Customer certifies that it is a
resident of the United States and shall notify Bank of any changes in residency.
Bank may rely upon this certification or the certification of such other facts
as may be required to administer Bank's obligations hereunder. Customer shall
indemnify Bank against all losses, liability, claims or demands arising directly
or indirectly from any such certifications.
(c) Access to Records. Bank shall allow Customer's independent public
accountant reasonable access to the records of Bank relating to the Assets as is
required in connection with their examination of books and records pertaining to
Customer's affairs. Subject to restrictions under applicable law, Bank shall
also obtain an undertaking to permit Customer's independent public accountants
reasonable access to the records of any Subcustodian which has physical
possession of any Assets as may be required in connection with the examination
of Customer's books and records.
(d) Governing Law; Successors and Assigns, Captions THIS AGREEMENT
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS
MADE AND TO BE PERFORMED IN NEW YORK and shall not be assignable by either
party, but shall bind the successors in interest of Customer and Bank. The
captions given to the sections and subsections of this Agreement are for
convenience of reference only and are not to be used to interpret this
Agreement.
(e) Entire Agreement; Applicable Riders. Customer represents that the
Assets deposited in the Accounts are (Check one):
X Investment Company assets subject to certain U.S. Securities and
Exchange Commission rules and regulations;
___ Other (specify)
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This Agreement consists exclusively of this document together with
Schedules A and B, Exhibits I - _______ and the following Rider(s)
[Check applicable rider(s)]:
_X_ INVESTMENT COMPANY
_X_ PROXY VOTING
_X_ SPECIAL TERMS AND CONDITIONS
There are no other provisions hereof and this Agreement supersedes any
other agreements, whether written or oral, between the parties. Any amendment
hereto must be in writing, executed by both parties.
(f) Severability. In the event that one or more provisions hereof are
held invalid, illegal or unenforceable in any respect on the basis of any
particular circumstances or in any jurisdiction, the validity, legality and
enforceability of such provision or provisions under other circumstances or in
other jurisdictions and of the remaining provisions shall not in any way be
affected or impaired.
(g) Waiver. Except as otherwise provided herein, no failure or delay on
the part of either party in exercising any power or right hereunder operates as
a waiver, nor does any single or partial exercise of any power or right preclude
any other or further exercise, or the exercise of any other power or right. No
waiver by a party of any provision hereof, or waiver of any breach or default,
is effective unless in writing and signed by the party against whom the waiver
is to be enforced.
(h) Representations and Warranties. (i) Customer hereby represents and
warrants to Bank that: (A) it has full authority and power to deposit and
control the Financial Assets and cash deposited in the Accounts; (B) it has all
necessary authority to use Bank as its custodian; (C) this Agreement constitutes
its legal, valid and binding obligation, enforceable in accordance with its
terms; (D) it shall have full authority and power to borrow moneys and enter
into foreign exchange transactions; and (E) it has not relied on any oral or
written representation made by Bank or any person on its behalf, and
acknowledges that this Agreement sets out to the fullest extent the duties of
Bank. (ii) Bank hereby represents and warrants to Customer that: (A) it has the
full power and authority to perform its obligations hereunder, (B) this
Agreement constitutes its legal, valid and binding obligation; enforceable in
accordance with its terms; and (C) that it has taken all necessary action to
authorize the execution and delivery hereof.
(i) Notices. All notices hereunder shall be effective when actually
received. Any notices or other communications which may be required hereunder
are to be sent to the parties at the following addresses or such other addresses
as may subsequently be given to the other party in writing: (a) Bank: The Chase
Manhattan Bank, 4 Chase MetroTech Center, Brooklyn, N.Y. 11245, Attention:
Global Investor Services, Investment Management Group; and (b) Customer: Two
Portland Square, Portland, Maine 04101 .
- --------------------------------------------------------------------------------
(j) Termination. This Agreement may be terminated by Customer or Bank by giving
sixty (60) days written notice to the other, provided that such notice to Bank
shall specify the names of the persons to whom Bank shall deliver the Assets in
the Accounts. If notice of termination is given by Bank, Customer shall, within
sixty (60) days following receipt of the notice, deliver to Bank Instructions
specifying the names of the persons to whom Bank shall deliver the Assets. In
either case Bank shall deliver the Assets to the persons so specified, after
deducting any amounts which Bank determines in good faith to be owed to it under
Section 13. If within sixty (60) days following receipt of a notice of
termination by Bank, Bank does not receive Instructions from Customer specifying
the names of the persons to whom Bank shall deliver the Assets, Bank, at its
election, may deliver the Assets to a bank or trust company doing business in
the State of New York to be held and disposed of pursuant to
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the provisions hereof, or to Authorized Persons, or may continue to hold the
Assets until Instructions are provided to Bank.
(k) Money Laundering. Customer warrants and undertakes to Bank for
itself and its agents that all Customer's customers are properly identified in
accordance with U.S. Money Laundering Regulations as in effect from time to
time.
(l) Imputation of certain information. Bank shall not be held
responsible for and shall not be required to have regard to information held by
any person by imputation or information of which Bank is not aware by virtue of
a "Chinese Wall" arrangement. If Bank becomes aware of confidential information
which in good faith it feels inhibits it from effecting a transaction hereunder
Bank may refrain from effecting it.
15. Definitions.
As used herein, the following terms shall have the meaning hereinafter
stated:
a) "Certificated Security" shall mean a security that is represented
by a certificate.
b) "Custody Account" means each Securities custody account on Bank's records
to which Financial Assets are or may be credited pursuant hereto.
c) "Entitlement Holder" shall mean the person on the records of a Securities
Intermediary as the person having a Securities Entitlement against the
Securities Intermediary.
d) "Financial Asset" shall mean, as the context requires, either the asset
itself or the means by which a person's claim to it is evidenced, including
a Certificated Security or Uncertificated Security, a security certificate,
or a Securities Entitlement.
e) "Securities" means stocks, bonds, rights, warrants and other negotiable and
non-negotiable paper whether issued as Certificated Securities or
Uncertificated Securities and commonly traded or dealt in on securities
exchanges or financial markets, and other obligations of an issuer, or
shares, participations and interests in an issuer recognized in an area in
which it is issued or dealt in as a medium for investment and any other
property as shall be acceptable to Bank for the Custody Account.
f) "Securities Entitlement" shall mean the rights and property interest of an
Entitlement Holder with respect to a Financial Asset as set forth in Part 5
of the Uniform Commercial Code.
g) "Securities Intermediary" shall mean Bank, a Subcustodian, a securities
depository, and any other financial institution which in the ordinary
course of business maintains custody accounts for others and acts in that
capacity.
h) "Uncertificated Security" shall mean a security that is not represented by
a certificate.
i) "Uniform Commercial Code" means Article 8 of the Uniform Commercial Code
of the State of New York, as the same may be amended from time to time.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first-above written.
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CUSTOMER
By: THOMAS G. SHEEHAN
------------------------
Title: VICE PRESIDENT
Date: AUGUST 13, 1999
THE CHASE MANHATTAN BANK
By: DAVID A. ETZBACH
------------------------
Title: VICE PRESIDENT
Date: AUGUST 13, 1999
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STATE OF MAINE )
: ss.
COUNTY OF COMBERLAND )
On this 13th day of August , 1999, before me personally came Thomas G.
Sheehan, to me known, who being by me duly sworn, did depose and say that he
resides in at Falmouth, Maine, that he is Vice President of Memorial Funds, the
entity described in and which executed the foregoing instrument; that he knows
the seal of said entity, that the seal affixed to said instrument is such seal,
that it was so affixed by order of said entity, and that he signed his name
thereto by like order.
Sworn to before me this
day of 13th day of August, 1999.
Notary
<PAGE>
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this day of , 199 , before me personally came , to me known, who
being by me duly sworn, did depose and say that he/she resides in at ; that
he/she is a Vice President of THE CHASE MANHATTAN BANK, the corporation
described in and which executed the foregoing instrument; that he/she knows the
seal of said corporation, that the seal affixed to said instrument is such
corporate seal, that it was so affixed by order of the Board of Directors of
said corporation, and that he/she signed his/her name thereto by like order.
Sworn to before me this________________
day of _______, 199_.
Notary
<PAGE>
Investment Company Rider to Global Custody Agreement
Between The Chase Manhattan Bank and
Memorial Funds
effective August 13, 1999
The following modifications are made to the Agreement:
A. Add a new Section 16 to the Agreement as follows:
"16. Compliance with SEC rule 17f-5.
(a) Customer's board of directors (or equivalent body) (hereinafter
`Board') hereby delegates to Bank, and, except as to the country or countries as
to which Bank may, from time to time, advise Customer that it does not accept
such delegation, Bank hereby accepts the delegation to it, of the obligation to
perform as Customer's `Foreign Custody Manager' (as that term is defined in SEC
rule 17f-5(a)(2) s promulgated under the Investment Company Act of 1940, as
amended ("1940 Act")), both for the purpose of selecting Eligible Foreign
Custodians (as that term is defined in SEC rule 17f-5(a)(1), and as the same may
be amended from time to time, or that have otherwise been made exempt pursuant
to an SEC exemptive order) to hold Financial Assets and Cash and of evaluating
the contractual arrangements with such Eligible Foreign Custodians (as set forth
in SEC rule 17f-5(c)(2)); provided that, the term Eligible Foreign Custodian
shall not include any `Eligible Securities Depository.' An Eligible Securities
Depository for purposes hereof shall have the same meaning as in SEC rule 17f-7
as proposed on April 29, 1999. (Eligible Securities Depositories used by Bank as
of the date hereof are set forth in Appendix 1-A hereto, and as the same may be
amended on notice to Customer from time to time.)
(b) In connection with the foregoing, Bank shall:
(i) provide written reports notifying Customer's Board of the placement
of Financial Assets and Cash with particular Eligible Foreign
Custodians and of any material change in the arrangements with such
Eligible Foreign Custodians, with such reports to be provided to
Customer's Board at such times as the Board deems reasonable and
appropriate based on the circumstances of Customer's foreign custody
arrangements (and until further notice from Customer such reports shall
be provided not less than quarterly with respect to the placement of
Financial Assets and Cash with particular Eligible Foreign Custodians
and with reasonable promptness upon the occurrence of any material
change in the arrangements with such Eligible Foreign Custodians);
(ii) exercise such reasonable care, prudence and diligence in
performing as Customer's Foreign Custody Manager as a person having
responsibility for the safekeeping of Financial Assets and Cash would
exercise;
(iii) in selecting an Eligible Foreign Custodian, first have determined
that Financial Assets and Cash placed and maintained in the safekeeping
of such Eligible Foreign Custodian shall be subject to reasonable care,
based on the standards applicable to custodians in the relevant market,
after having considered all factors relevant to the safekeeping of such
Financial Assets and Cash, including, without limitation, those factors
set forth in SEC rule 17f-5(c)(1)(i)-(iv);
<PAGE>
(iv) determine that the written contract with the Eligible Foreign
Custodian requires that the Eligible Foreign Custodian will provide
reasonable care for Financial Assets and Cash based on the standards
applicable to custodians in the relevant market.
(v) have established a system to monitor the continued appropriateness
of maintaining Financial Assets and Cash with particular Eligible
Foreign Custodians and of the governing contractual arrangements; it
being understood, however, that in the event that Bank shall have
determined that the existing Eligible Foreign Custodian in a given
country would no longer afford Financial Assets and Cash reasonable
care and that no other Eligible Foreign Custodian in that country would
afford reasonable care, Bank shall promptly so advise Customer and
shall then act in accordance with the Instructions of Customer with
respect to the disposition of the affected Financial Assets and Cash.
Subject to (b)(i)-(v) above, Bank is hereby authorized to place and maintain
Financial Assets and Cash on behalf of Customer with Eligible Foreign Custodians
pursuant to a written contract deemed appropriate by Bank.
(c) Except as expressly provided herein, Customer shall be solely
responsible to assure that the maintenance of Financial Assets and Cash
hereunder complies with the rules, regulations, interpretations and exemptive
orders promulgated by or under the authority of the SEC.
(d) Bank represents to Customer that it is a U.S. Bank as defined in
Rule 17f-5(a)(7). Customer represents to Bank that: (1) the Financial Assets and
Cash being placed and maintained in Bank's custody are subject to the 1940 Act,
as the same may be amended from time to time; (2) its Board: (i) has determined
that it is reasonable to rely on Bank to perform as Customer's Foreign Custody
Manager (ii) or its investment adviser shall have determined that Customer may
maintain Financial Assets and Cash in each country in which Customer's Financial
Assets and Cash shall be held hereunder and determined to accept the risks
arising therefrom (including, but not limited to, a country's financial
infrastructure), prevailing custody and settlement practices, laws applicable to
the safekeeping and recovery of Financial Assets and Cash held in custody, and
the likelihood of nationalization, currency controls and the like) (collectively
("Country Risk")). Nothing contained herein shall require Bank to make any
selection or to engage in any monitoring on behalf of Customer that would entail
consideration of Country Risk.
(e) Bank shall provide to Customer such information relating to Country
Risk as is specified in Appendix 1-B hereto. Customer hereby acknowledges that:
(i) such information is solely designed to inform Customer of market conditions
and procedures and is not intended as a recommendation to invest or not invest
in particular markets; and (ii) Bank has gathered the information from sources
it considers reliable, but that Bank shall have no responsibility for
inaccuracies or incomplete information.
B. Add the following after the first sentence of Section 3 of the
Agreement: "At the request of Customer, Bank may, but need not, add to Schedule
A an Eligible Foreign Custodian where Bank has not acted as Foreign Custody
Manager with respect to the selection thereof. Bank shall notify Customer in the
event that it elects to add any such entity."
C. Add the following language to the end of Section 3 of the Agreement:
"The term Subcustodian as used herein shall mean the following:
(a) a `U.S. Bank,' which shall mean a U.S. bank as defined in SEC rule
17f-5(a)(7);
15
<PAGE>
(b) an `Eligible Foreign Custodian,' which shall mean (i) a banking
institution or trust company, incorporated or organized under the laws
of a country other than the United States, that is regulated as such by
that country's government or an agency thereof, (ii) a majority-owned
direct or indirect subsidiary of a U.S. bank or bank holding company
which subsidiary is incorporated or organized under the laws of a
country other than the United States; and (iii) any other entity (other
than an Elibible Securities Depository) that shall have been so
qualified by exemptive order, rule or other appropriate action of the
SEC.
For purposes of clarity, it is agreed that as used in Section 12(a)(i), the term
Subcustodian shall not include any Eligible Foreign Custodian as to which Bank
has not acted as Foreign Custody Manager or any Eligible Securities Depository."
<PAGE>
Appendix 1-A
ELIGIBLE SECURITIES DEPOSITORIES
<PAGE>
Appendix 1-B
Information Regarding Country Risk
1. To aid Customer in its determinations regarding Country Risk, Bank
shall furnish annually and upon the initial placing of Financial Assets and Cash
into a country the following information (check items applicable):
A Opinions of local counsel concerning:
_X_ i. Whether applicable foreign law would restrict the access
afforded Customer's independent public accountants to books
and records kept by an eligible foreign custodian located in
that country.
_X_ ii. Whether applicable foreign law would restrict the
Customer's ability to recover its Financial Assets and Cash in
the event of the bankruptcy of an Eligible Foreign Custodian
located in that country.
_X_ iii. Whether applicable foreign law would restrict the
Customer's ability to recover Financial Assets that are lost
while under the control of an Eligible Foreign Custodian
located in the country.
B. Written information concerning:
_X_ i. The foreseeability of expropriation, nationalization, freezes,
or confiscation of Customer's Financial Assets and Cash.
_X_ ii. Whether difficulties in converting Customer's cash and cash
equivalents to U.S. dollars are reasonably foreseeable.]
C. A market report with respect to the following topics:
(i) securities regulatory environment, (ii) foreign ownership
restrictions, (iii) foreign exchange, (iv) securities settlement and
registration, (v) taxation, and (vi) compulsory depositories (including
depository evaluation).
2. To aid Customer in monitoring Country Risk, Bank shall furnish board
the following additional information:
Market flashes, including with respect to changes in the information in
market reports.
<PAGE>
GLOBAL PROXY SERVICE RIDER
To Global Custody Agreement
Between
THE CHASE MANHATTAN BANK
AND
MEMORIAL FUNDS
dated AUGUST 13, 1999.
1. Global Proxy Services ("Proxy Services") shall be provided for the
countries listed in the procedures and guidelines ("Procedures")
furnished to Customer, as the same may be amended by Bank from time to
time on prior notice to Customer. The Procedures are incorporated by
reference herein and form a part of this Rider.
2. Proxy Services shall consist of those elements as set forth in the
Procedures, and shall include (a) notifications ("Notifications") by
Bank to Customer of the dates of pending shareholder meetings,
resolutions to be voted upon and the return dates as may be received
by Bank or provided to Bank by its Subcustodians or third parties, and
(b) voting by Bank of proxies based on Customer Instructions. Original
proxy materials or copies thereof shall not be provided. Notifications
shall generally be in English and, where necessary, shall be
summarized and translated from such non-English materials as have been
made available to Bank or its Subcustodian. In this respect Bank's
only obligation is to provide information from sources it believes to
be reliable and/or to provide materials summarized and/or translated
in good faith. Bank reserves the right to provide Notifications, or
parts thereof, in the language received. Upon reasonable advance
request by Customer, backup information relative to Notifications,
such as annual reports, explanatory material concerning resolutions,
management recommendations or other material relevant to the exercise
of proxy voting rights shall be provided as available, but without
translation.
3. While Bank shall attempt to provide accurate and complete
Notifications, whether or not translated, Bank shall not be liable for
any losses or other consequences that may result from reliance by
Customer upon Notifications where Bank prepared the same in good faith.
4 Notwithstanding the fact that Bank may act in a fiduciary capacity with
respect to Customer under other agreements or otherwise under the
Agreement, in performing Proxy Services Bank shall be acting solely as
the agent of Customer, and shall not exercise any discretion with
regard to such Proxy Services.
5. Proxy voting may be precluded or restricted in a variety of
circumstances, including, without limitation, where the relevant
Financial Assets are: (i) on loan; (ii) at registrar for registration
or reregistration; (iii) the subject of a conversion or other corporate
action; (iv) not held in a name subject to the control of Bank or its
Subcustodian or are otherwise held in a manner which precludes voting;
(v) not capable of being voted on account of local market regulations
or practices or restrictions by the issuer; or (vi) held in a margin or
collateral account.
6 Customer acknowledges that in certain countries Bank may be unable to
vote individual proxies but shall only be able to vote proxies on a net
basis (e.g., a net yes or no vote given the voting instructions
received from all customers).
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<PAGE>
7. Customer shall not make any use of the information provided hereunder,
except in connection with the funds or plans covered hereby, and shall
in no event sell, license, give or otherwise make the information
provided hereunder available, to any third party, and shall not
directly or indirectly compete with Bank or diminish the market for
Proxy Services by provision of such information, in whole or in part,
for compensation or otherwise, to any third party.
8. The names of Authorized Persons for Proxy Services shall be furnished
to Bank in accordance with ss.10 of the Agreement. Proxy Services fees
shall be as set forth in ss.13 of the Agreement or as separately
agreed.
<PAGE>
SPECIAL TERMS AND CONDITIONS RIDER
GLOBAL CUSTODY AGREEMENT
WITH MEMORIAL FUNDS
DATE AUGUST 13, 1999
<PAGE>
DOMESTIC ONLY
SPECIAL TERMS AND CONDITIONS RIDER
Domestic Corporate Actions and Proxies
- --------------------------------------
With respect to domestic U.S. and Canadian Financial Assets (the latter if held
in DTC), the following provisions shall apply rather than the provisions of
Section 8 of the Agreement and the Global Proxy Service rider:
Bank shall send to Customer or the Authorized Person for a Custody
Account, such proxies (signed in blank, if issued in the name of Bank's
nominee or the nominee of a central depository) and communications with
respect to Financial Assets in the Custody Account as call for voting
or relate to legal proceedings within a reasonable time after
sufficient copies are received by Bank for forwarding to its customers.
In addition, Bank shall follow coupon payments, redemptions, exchanges
or similar matters with respect to Financial Assets in the Custody
Account and advise Customer or the Authorized Person for such Account
of rights issued, tender offers or any other discretionary rights with
respect to such Financial Assets, in each case, of which Bank has
received notice from the issuer of the Financial Assets, or as to which
notice is published in publications routinely utilized by Bank for this
purpose.
Fees
- ----
The fees referenced in Section 13 hereof cover only domestic and euro-dollar
holdings. There shall be no Schedule A hereto, as there are no foreign assets in
the Accounts.
<PAGE>
DOMESTIC AND GLOBAL
SPECIAL TERMS AND CONDITIONS RIDER
Domestic Corporate Actions and Proxies
- --------------------------------------
With respect to domestic U.S. and Canadian Financial Assets (the latter if held
in DTC), the following provisions shall apply rather than the pertinent
provisions of Section 8 of the Agreement and the Global Proxy Service rider:
Bank shall send to Customer or the Authorized Person for a Custody
Account, such proxies (signed in blank, if issued in the name of Bank's
nominee or the nominee of a central depository) and communications with
respect to Financial Assets in the Custody Account as call for voting
or relate to legal proceedings within a reasonable time after
sufficient copies are received by Bank for forwarding to its customers.
In addition, Bank shall follow coupon payments, redemptions, exchanges
or similar matters with respect to Financial Assets in the Custody
Account and advise Customer or the Authorized Person for such Account
of rights issued, tender offers or any other discretionary rights with
respect to such Financial Assets, in each case, of which Bank has
received notice from the issuer of the Financial Assets, or as to which
notice is published in publications routinely utilized by Bank for this
purpose.
17
<PAGE>
Fee Agreement Between
The Chase Manhattan Bank and Memorial Funds
Dated as of August 13, 1999
U.S. DOMESTIC ASSETS
MARKET SAFEKEEPING FEE (B.P.) TRANSACTION FEE
CHARGES:
- --------------------------------------------------------------------------
United States 0.0001 Book-Entry
Transactions: $12
Physical
Transactions: $18
P&I Paydown: $10
Wire Movements:
$10
EAFE ASSETS
MARKETS SAFEKEEPING FEE (B.P.) TRANSACTION
CHARGES:
Australia 0.0006 $35
Austria 0.0008 $50
Belgium 0.0080 $50
Canada 0.0004 $35
Cedel 0.0002 $25
Denmark 0.0008 $50
Euro CD's 0.0003 $30
Finland 0.0008 $50
France 0.0006 $35
Germany 0.0006 $35
Hong Kong 0.0008 $50
Ireland 0.0006 $35
Italy 0.0008 $50
Japan 0.0004 $35
Luxembourg 0.0008 $50
Netherlands 0.0006 $35
New Zealand 0.0010 $35
Norway 0.0008 $50
Portugal 0.0035 $100
Singapore 0.0010 $50
<PAGE>
Spain 0.0012 $75
Sweden 0.0008 $50
Switzerland 0.0006 $35
United Kingdom 0.0005 $35
Minimum annual custody (per fund): $30,000
Memorial Funds The Chase Manhattan Bank
By: /s/ Thomas G. Sheehan By: /s/ David Etzbach
- ---------------------------------------- ----------------------------------
Name: Thomas G. Sheehan Name: David Etzbach
- ---------------------------------------- ----------------------------------
Title: Vice President Title: Vice President
- ---------------------------------------- ----------------------------------
